Morgan Stanley Says Gulfport Energy Offers Among The 'Greatest Leverage' In Dry Gas Utica

In a report published Thursday, Morgan Stanley analyst Drew Venker maintained an Equal-Weight rating on Gulfport Energy Corp GPOR, while raising the price target from $54 to $55. Gulfport has announced its second gas acquisition in the Dry Gas Ultica, thus strengthening its existing position. The acquisition, second since April 2015, includes 35,325 net Dry Gas Utica acres and 15 MMcf/d of production, and was made from American Energy Partners for a total consideration of $407 million. "This implies a favorable transaction price of $9,500/undeveloped net acre(excluding the $20 million allocated to gathering systems and $52 million allocated to the producing assets and DUC inventory), which compares to the $12,700/undeveloped net acre paid in GPOR's April acquisition of Paloma Partners III," analyst Drew Venker mentioned. The transaction metrics of the latest acquisition compare favorably to an average price of $14,000/acre for recent acquisitions in the Dry Gas window. Gulfport also announced a 10 million share secondary offering (10 percent of shares outstanding) to fund the acquisition and shore up the balance sheet. In the report Morgan Stanley noted, "Gulfport intends to add one rig to operate on the acquired acreage beginning in 1Q16, which increases our 2016 production growth estimate to 50% YoY from 37% prior." "The acquisition also includes 287,000 MMBtu/d of incremental firm transport capacity to the Midwest, Gulf Coast, and Canada, bringing YE-2016 FT to 1,100,000 MMBtu/d and 1,262,000 MMBtu/d by YE-2017. This compares to our 4Q16 gas production estimate of 885 MMcf/d (gross) and 1,105 MMcf/d (gross) in 2017," Venker added.