Prepared remarks
Greetings, and welcome to the Gulfport Energy Corporation Second Quarter 2026 Earnings Call. 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 offset-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 a $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 number one 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 leasehold 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.
Questions and answers
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 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. The team has 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 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 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, on execution. I know when we spoke with you last night, you mentioned you'll continue to execute well but will continue to look for ways to improve upon this execution. As you're new into the seat, do you see some low-hanging fruit when you work with Matt's team around this? What do you anticipate the near and further focus will be around this?
Yes, it's a great question as well. 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 quality time with the teams, and 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 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 is very possible to do that. We need 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 with the message before you, Mike, best of luck. First question, Nick, 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 inorganic 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, and 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. 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 company to develop their minerals. The team has done an excellent job on that effort over the last couple of years. 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. 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 at 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. 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 also consider that we participated in the State Land Auction this year to the tune of $83 million of successful bids. We've added some fantastic acreage. It helps to solidify the duration and build on it. When we think about how we allocate capital going forward, there will still be an active leasing program, and I hope to have opportunities to add high-quality locations at attractive prices every year. But realistically, it probably won't be as large as this year. When you think about the free cash flow available to this company, that frees up cash for other things. We've been buying shares, which is great. We also have a balance sheet that sits right around 1x levered today. A conservatively run E&P company should 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 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 as my follow-up, Gulfport has generally been viewed as a later participant when it comes to new trends such as the data center and power demand in Appalachia and the demand pull that brings. I wonder where you are today on that stance and why you think the right approach is to be a later participant and wait for the Basin to prove out the magnitude of the demand pull, rather than participating head on.
I actually don't think we've been a late adopter at all, Carlos. The company has done a good job of positioning itself. We're a smaller cap company than some much bigger peers, and naturally, when you think about the long-term partnerships that some companies have been able to focus on for data centers, we're probably not going to be first on the list for those. That said, we sell a lot of gas in-basin, which comes with 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 tightening at this time of year could be green shoots of where that demand is showing up in-basin. We're really excited about what that local pricing can mean for us. The fact that we have low gathering, processing and transportation costs with some in-basin sales and a lot of flexibility about who we sell to means we are well positioned to capitalize on the trend of growing in-basin demand. The one thing I would note is these projects take a long time to come together and have uncertain timelines. For a company of our size, we do not want to be early with growth volumes in a way that would result in reduced prices for our product ahead of demand being there. It's better to allow that demand to show up and 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 interesting, showing your next five years of development. I know it's illustrative and subject to change, but we noticed the percent of activity you plan comes from these ongoing acquisitions. How much of that is driven by holding by production versus drilling the best rock you have in-house? And I'm curious about the Marcellus allocation because from other materials, returns there seem 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 held by production, so not a huge need to move on that in the intermediate term. This discretionary acreage acquisition program over the last three years we've talked about as being highly economic. We look for opportunities that compete to the far left of our skyline. We're able to execute on it quickly and mass a position where we can put it on the drill schedule in the near term, which improves the returns. That allows it to compete with or overtake some of the existing wells that are still very low breakevens on the Enverus chart, but that still compete for capital and put us in a position to execute quickly. The Marcellus, with that delineation and attractive economics, will continue to be a part of our program but likely a smaller piece. The commodity price environment and our capital allocation decisions can flex that up or down. We're really excited about it. It helps us deliver a balanced approach to the commodity and our long-range planning.
I'll just add to that, Tim. You asked specifically whether these locations in our near-term drilling program are just because of held by production concerns. To reiterate what Matt said, no. What we've highlighted in the chart is 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 reflect the competitive nature of the company's inventory in the Enverus chart of weighted average breakevens. This leasehold program over the last couple of years didn't just go buy pasture on the fringes of the play. The team bought actionable near-term high-quality acreage that will greatly improve the return through the drill bit for the company relative to where we'd be without it.
Okay, I appreciate the clarity. Nick, you mentioned 'execution efficiency' several times during your prepared comments. You bring learnings from a larger organization. Can you provide more context on what you mean? Gulfport has had a history in the last couple of years of a front-end loaded capital program, and we've typically seen production trough in the first quarter as a result. Do you have views on that schedule and is that part of the efficiency initiatives?
I'm glad you asked. I would love to see us get to a place where we can run a more consistent program in the Basin. It's going to take work. We need to be well planned across all the disciplines and services that need to be brought to bear to do that effectively. 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 timeline just yet. But consistent continuous operations will drive our ability to lower well costs and execute better wells every time we turn the drill bit. So I think all of that works to our favor if we can get there. We must be well planned and not force an answer too quickly that then results in moving in the wrong direction on a cost basis.
Your next question comes from the line of Peyton Dorne with UBS.
On the Marcellus, the early commentary on the new pads' performance was positive. At the Q1 update, you highlighted drilling efficiency gains on the pad. I wonder if you could touch on the completion side. And when you look at that pad's overall well cost, how do you see costs trending versus your earlier Marcellus drilling?
Yes, Peyton. You noted it; we had a really good first quarter drill on that pad, four wells with a 16,000-foot lateral average. We finished that in the second quarter with the same momentum on the completion side. We had a very efficient frac operation, pumping over 20 hours per day. We were able to place our stages exactly how we wanted to. Those pads were turned to sales at the end of the quarter and are finishing up flowback now. We choked those back a little more on the ramp-up in the cleanup phase. We believe there's opportunity on the subsurface side to improve recoveries. All is looking great. We've turned the pad up to its full initial production potential and it is holding relatively flat. We've seen better-than-anticipated gas rates and liquids rates, which is very encouraging because costs have been driven down significantly on a dollar per foot basis. Compared to the shorter laterals we did last year, it's about 25% lower on the drilling and completion side on a dollar per foot basis. So this is a highly economic project and reflects how we'll develop the asset through the life of the play because we've now developed the playbook for our inter-lateral spacing and preferred lateral length for the rest of the acreage. We're really excited about that project and where the liquids rates have come in.
Okay, great. As a follow-up, Nick, you noted the opportunity for opening greater market access and referenced in-basin sales earlier. Could you expand on what near- and medium-term opportunities you see for improved market access? Is the desire to get more gas to different sales points in-basin or out of Ohio? Curious for more detail.
It's about working with customers to determine how we can best help them solve their needs and making sure we're getting gas where it needs to be. Given our recent credit upgrade, we're pleased, but given our size and credit profile, we won't be the first choice for 15- or 20-year contracts. That said, we are well positioned to sell gas into projects being set up in our backyard. We want to ensure we get gas to these customers, understand what they need and be flexible in delivery. There are opportunities for a company our size to do that, in addition to what you've seen from some larger companies with very long-term contracts.
Your next question comes from the line of Gabriel Daoud with Truist Securities.
Congrats, Nick, and Michael, all the best. Can we get updated thoughts around the buyback, not only for this year but longer-term? Gulfport has been active from a buyback standpoint in recent years. Is there any change in how we should view that going forward?
I don't think there's a lot of change. The company will continue to generate significant free cash flow. That's one reason I emphasized capital allocation in my prepared comments. We'll be thoughtful about capital allocation. We have a handful of strategic goals and will always weigh investments toward those goals against the returns available from buying our shares. Shares have traded lower for much of this year and the company has been buying stock. We'll also weigh that against our balance sheet. This has been a big spend year because we had great opportunities to secure high-quality inventory. I don't think we will have the volume of transactions next year to consume as much free cash flow for inventory growth. If I'm wrong and we do, that's even better, but I don't expect it. As a result, I expect we'll bring leverage down through the year. We will also be able to continue buying shares because of the free cash flow we generate. We'll be active with our buyback program in the second half of this year. We have balance sheet capacity and financial flexibility to maintain an active program while keeping an eye on reducing debt. We'll balance all of those things together. We are fortunate to have choices from a capital allocation standpoint: free cash flow, opportunities to invest in the business, and the option to buy our shares. That's a great position to be in.
That's helpful. As a follow-up, you talked about inventory duration and depth. How do you view portfolio optimization going forward on acquisitions and divestitures? Some people wonder whether Gulfport could consider larger-scale M&A or divest SCOOP to become more of a pure-play Appalachia/Ohio company. How do you respond to that?
I view M&A as an opportunity for scale only if you get the right assets at the right price and they truly make the company better, not just bigger. Deals are hard. It's not a good strategy to say we'll go buy something for the sake of it. Instead, we focus on making our business better every day. If we do that, when opportunities show up to add acreage or production, we'll have the confidence to act. When assets are for sale, companies need to ask why they're the right buyer. If you're going to win a bid, you must know how you'll pay more than someone else and make it work. You need a strategic advantage and a view of what you can do with the assets differently than others. You also need a seller that aligns with your view and a valuation that makes sense. Because all these factors are hard to line up, we don't go in saying we'll absolutely do a deal; we position ourselves to be the best company in the area so when opportunities appear, we can be choosy. Regarding SCOOP, it's an interesting asset for Gulfport. It hasn't seen a lot of investment in recent years but has relatively steady production and a compelling geographic location. You'll see a lot of gas coming from the Permian for a while, but Gulf Coast gas demand will grow rapidly and at some point will need gas from the Mid-Continent. Pipeline capacity out of the Permian will remain full. There is available pipeline capacity from the Mid-Continent today that, with the right investment and timing when prices are right, can deliver to growing markets with attractive returns. I like the geographic positioning of the Mid-Continent from a macro perspective and like our assets. We need to do work to understand the right way to invest in SCOOP and our strategy for it. So more to come on SCOOP, but we are intrigued by its potential and have work to do to understand that asset better.
Your next question comes from the line of John Edelman with Jefferies.
Taking a different angle on gas marketing: you released 60,000 Mcf/d of firm transportation, about 10% of your takeaway, which makes sense given your outlook on M2 and it's something many peers are doing in Appalachia. A few questions: could you frame the free cash flow uplift opportunity underlying that decision? What is the opportunity to add or relinquish firm transportation going forward? And are there any near-term impacts on your gathering, processing and transportation rate given that is offset by liquids growth and higher processing costs?
I'll start and Michael may add. That release was a relatively small opportunity for us. You have to actively manage an FT portfolio over time to create value. When someone else has a need for a piece of transport and is willing to make a trade that works for you, you should do it. I'm a fan of actively managing these portfolios. I wouldn't read a lot into a long-term trend from that single move other than active management of FT is the approach. Mike?
Yes, to add to Nick's point, we look at these on a netback basis. This wasn't an extremely expensive piece of FT, and because we could get to a strong sales point without it and have strong flow assurance in the area, we decided there was an economic uplift to release it. Going forward, we like our FT portfolio and think we have good diversity. Some sales points are very valuable for us. We'll always look for the right opportunities to add value in FT, but I don't think there's a trend to extrapolate from that one decision other than we'll 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 already. I wanted to zero in on the quality aspect of the roughly 40 locations you've talked about adding through the acreage acquisition program. Can you help us frame that relative to the legacy inventory base?
You'll see a handful of slides in the deck that are new this time; we tried to highlight the quality of the recent acreage purchases. It doesn't incorporate everything we're buying this year because we don't own it yet, but you can see what we've been targeting and the quality we've been able to secure. I would expect this year to look similar in terms of quality.
Yes, nothing else to add. It's bolting on to the same general areas we've been active in over the last couple of years. As Nick said, it's been the culmination of the team's work over that period, and that's where the execution will end up. It's split across our asset base areas with highly attractive rates of return, and those bars will change over time.
That's great. As a follow-up, I appreciate the comments around 2027 acquisition opportunity set likely not being as significant as this year's step-up. In terms of buyback in the second half and capacity to do that given the step-up in investment spend, any framing? Historically repurchases have been around 80% to over 100% of free cash flow last year. Any comments on what we could see in the second half?
I'm going to hold off on giving specific quarter-by-quarter buyback guidance other than to note we expect to be active and will continue to think about capital allocation as I described earlier.
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 have a lot of great assets. The Southwest Appalachian Basin in general, and Ohio in particular, is a really interesting place to be doing business right now. I think Gulfport, with the inventory position we have and the operating capabilities 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. I 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 your 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.