Gulfport Energy, a name synonymous with natural gas, might be sitting on a secret weapon, a quiet revolution brewing beneath their Utica fields in Belmont County, Ohio. While Wall Street fixates on the company's solid gas production and robust hedging strategies, a closer look at their Q1 2024 earnings call transcript reveals a potential game-changer: the Marcellus shale.

Gulfport's foray into the Marcellus began almost as a footnote, a two-well experiment on existing Utica pads. But the results, as detailed in their recent earnings call, are anything but insignificant. These wells, normalized to a 15,000-foot lateral, are delivering an astonishing average 120-day initial production rate of approximately 795 barrels per day of oil and 5.5 million cubic feet per day of natural gas. That's a staggering amount of oil, particularly for a company known primarily for its gas prowess.

What's even more intriguing is the pressure data. These wells, under pressure-managed flow, are experiencing a mere 5 PSI pressure drop per day after 120 days of production. This suggests a remarkable reservoir pressure, potentially indicating a significantly longer production life and higher ultimate recovery than initially anticipated.

Gulfport, keenly aware of the potential, is already planning a four-well Marcellus development on an existing Utica pad, slated for early 2025. They've also de-risked their Marcellus position, estimating a potential of 50 to 60 gross well locations across their Ohio acreage.

Here's where the Wall Street oversight comes in. While analysts acknowledge the promising Marcellus results, they seem to downplay the potential impact on Gulfport's overall production mix and valuation. The focus remains firmly on the company's gas production, hedged at an impressive average floor price of $3.67 per Mcf, providing a solid foundation for free cash flow generation.

"“Our all in realized pricing for the first quarter was $3.16 per Mcfe, including the impact of cash settled derivatives. This realized unit price is $0.92 above NYMEX Henry Hub Index price, highlighting the benefit of Gulfport’s differentiated hedge position, diverse marketing portfolio for natural gas and the pricing uplift from our liquids portfolio in both of our asset areas.” - **Michael Hodges, EVP and CFO, Gulfport Energy Q1 2024 Earnings Call**"

But what if the Marcellus oil production ramps up significantly? Let's crunch some numbers. Assuming a conservative estimate of 50 Marcellus wells, each producing an average of 500 barrels of oil per day (a significant reduction from the initial 795 barrels), Gulfport could potentially add 25,000 barrels of oil per day to its production mix. This would represent a massive shift from their current 92% natural gas production, drastically altering their revenue stream and profitability.

Furthermore, with oil prices currently hovering around $80 per barrel, this additional production could translate to an additional $2 million in daily revenue, or roughly $730 million annually. This would be a substantial boost to Gulfport's current revenue of $913 million, significantly enhancing their free cash flow and potentially leading to accelerated share buybacks or even a dividend initiation.

Potential Shift in Gulfport's Production Mix

The following chart illustrates the potential shift in Gulfport's production mix if Marcellus oil production ramps up significantly.

While Gulfport maintains a cautious approach to their Marcellus development, stating a cadence of "about a pad to a pad and a half per year," their actions speak louder than words. The planned four-well development in early 2025 hints at a faster ramp-up than initially anticipated.

Could it be that Gulfport, known for its expertise in unlocking shale gas, has stumbled upon a liquid goldmine? The data certainly suggests a potential windfall, a possibility that Wall Street, with its laser focus on natural gas, might be overlooking. The Marcellus, a quiet whisper in Gulfport's earnings call, could become a resounding roar in the years to come, reshaping the company's narrative and dramatically enhancing its value.

"Fun Fact: The Marcellus Shale is named after a small town in New York where the shale formation was first identified in 1839. It stretches across a vast area from New York to West Virginia and is considered one of the largest natural gas fields in the world."