Gulfport plans equity offering to fund Ohio Utica Shale development

To help fund its Utica Shale drilling and development plan, Gulfport Energy Corp. (NASDAQ: GPOR) has announced plans to offer five million shares to the public, of which four million will be new shares and one million will be offered by an individual stockholder. Also included is an overallotment of 600,000 and 150,000 shares for new shares and the individual stockholder, respectively.

Proceeds are intended to be used to repay the current outstanding balance under its secured revolving credit facility, to fund capital expenditures associated with drilling, development and infrastructure, principally in the Utica Shale in Ohio, and for general corporate purposes.

Utica Shale acreage values are trending higher, especially in the Ohio region as major players like Chesapeake Energy announce promising results that analysts at Jefferies & Co. Inc. are calling “encouraging results” that “bode well for the future of the play.”

The equity offering is seen as a negative to existing shareholders by Stifel Nicolaus analysts. “Given that we do not see any need for the offering given the clean balance sheet to begin with and the minor cash flow outspend in 2012 based on current guidance, we view the offering as a negative for existing shareholders since there were no funding/balance sheet issues to begin with and it dilutes our CFPS and NAV by 7% and 8%, respectively,” said the analysts in a November 29 note to investors.

Offering impact

Stifel is maintaining its Hold rating on the stock and says it may become more attractive. “Post the offering, with a lower stock price (due to the offering), with less overhang (less shares remaining with the large non-controlling shareholder), and a balance sheet poised to further accelerate development if results warrant, the attraction of the stock is increasing.”

“Based on our projections and initial 2012 guidance of $250 million capex budget (including additional leasehold acquisitions) and full year production of 3.0-3.2 MMboe, we estimate $208 million in operating cash flow in 2012, resulting in a manageable cash flow outspend of $40 million. Combined with the current net cash position of over $20 million and what we view as a minimal funding shortfall before turning free cash flow positive in 1H12, we believe that GPOR may use the offering proceeds to further accelerate development of the Utica beyond the 20 gross well program they have laid out, increase its leasehold position in the play, and/or take advantage of an opening in the equity window,” the analysts concluded.

Credit Suisse Securities (USA) LLC is acting as sole book-running manager in the offering.

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