Jessica R. Wills - Gulfport Energy Corp. Michael G. Moore - Gulfport Energy Corp. Donnie Moore - Gulfport Energy Corp. Keri Crowell - Gulfport Energy Corp. Ty Peck - Gulfport Energy Corp. Paul K. Heerwagen - Gulfport Energy Corp..

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc. Ronald E. Mills - Johnson Rice & Co. LLC Holly Barrett Stewart - Scotia Howard Weil David A. Deckelbaum - KeyBanc Capital Markets, Inc. Jason Wangler - Imperial Capital LLC John Nelson - Goldman Sachs & Co. LLC Oliver Huang - Tudor, Pickering, Holt & Co. Securities, Inc. Leo P.

Mariani - National Alliance Securities LLC Jeffrey Campbell - Tuohy Brothers Investment Research, Inc..

Greetings and welcome to Gulfport Energy Corporation First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jessica Wills, Director of Investor Relations. Thank you. You may begin..

Thank you and good morning. Welcome to Gulfport Energy Corporation's first quarter of 2017 earnings conference call. I am Jessica Wills, Director of Investor Relations. Speakers on today's call include Mike Moore, Chief Executive Officer and President; Donnie Moore, Chief Operating Officer; and Keri Crowell, Chief Financial Officer.

In addition, with me today available for the question-and-answer portion of the call, are Paul Heerwagen, Senior Vice President of Corporate Development and Strategy; and Ty Peck, Senior Vice President of Midstream and Marketing.

I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements related to the company's financial condition, results of operations, plans, objectives, future performance and business.

We caution you that the actual results 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 make reference to other non-GAAP measures.

If this occurs, the appropriate reconciliations to the GAAP measures will be posted on our website. Yesterday afternoon, Gulfport reported first quarter 2018 net income of $90.1 million or $0.50 per diluted share.

These results contain several non-cash items, including an aggregate non-cash derivative loss of $25.4 million, and a gain of $13.5 million in connection with Gulfport's interest in certain equity investments.

Comparable to analyst estimates, our adjusted net income for the first quarter of 2018, which excludes the previous mentioned items, was $101.9 million or $0.56 per diluted share. 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 Mike Moore, CEO of Gulfport Energy..

Thank you, Jessica. Welcome, everyone, and thank you all for joining this morning.

As announced in the press release yesterday evening for the first quarter of 2018, Gulfport reported approximately $101.9 million of adjusted net income on $350.8 million of adjusted oil and natural gas revenues and generated approximately $247.9 million of adjusted EBITDA.

Gulfport began the year strong both operationally and financially, delivering on several of our strategic objectives planned for 2018.

The first quarter was another excellent operational quarter for Gulfport, highlighted by the production growth from our liquids rich SCOOP assets, which increased 19% over the fourth quarter, as well as the continued solid performance out of the Utica shell despite essentially zero wells turn to sales in Ohio during the quarter.

Total net production for the first quarter averaged approximately 1.29 billion cubic feet of gas equivalent per day, ahead of our previously provided expectations and a 2% increase over the fourth quarter of 2017.

We continue to see improvements in our per unit operating expense, decreasing 11% from the fourth quarter of 2017 and totaling $0.88 per Mcfe in the first quarter.

Our strong realizations and the decrease in operating expenses led to EBITDA expansion and our adjusted EBITDA increased 10% over the fourth quarter of 2017, getting us off to a strong start towards our commitment to free cash flow generation in 2018.

Driven by the outperformance of our base production wedge and new turn in line delivery in the SCOOP, I am pleased to announce our results year-to-date have led us to increase our 2018 production guidance and we now forecast our total net production during 2018 will average 1.31 billion cubic feet to 1.34 billion cubic feet of gas equivalents per day, an increase of approximately 20% to 23% year-over-year highlighting the quality of our asset base and further bolstering the free cash flow generated from our 2018 activities.

I reiterate our thoughts from our February call that Gulfport remains steadfastly committed to funding our total 2018 capital budget from cash flow and reconfirm our previously stated 2018 D&C capital guidance.

As planned the 2018 capital program is heavily weighted to the first half of the year and Gulfport's D&C capital during the first quarter of 2018 totaled $248 million and non-D&C capital totaled approximately $43 million.

We estimate roughly two thirds of the capital budget will be invested during the first half of the year, with spend decreasing significantly in the third quarter and the fourth quarter and as a result providing meaningful free cash flow generation in the latter half of the year.

On the monetization front, we recently completed the announced sell of Gulfport's 25% equity interest in Strike Force midstream to EQT Midstream Partners in an all cash transaction for a total of $175 million.

The sale of this investment provides meaningful proceeds during the second quarter and reduces our 2018 non-D&C capital by approximately $20 million from our previously provided guidance. In addition, it is important to note that we see no impact to Gulfport's midstream gathering and processing expense as a result of this sale.

At the end of the first quarter, net of distributions and including our contribution of an 11-mile long gathering line in 2016, we had invested $78.9 million in Strike Force. Gulfport monetized the asset at 2.2 times invested capital, above expectations and providing over a 300% cash on cash rate of return on our investment.

As we noted in February, we plan to be opportunistic and aggressive with our share repurchase program and prior to the end of the first quarter, we repurchased all 100 million of Gulfport shares in the open market, reducing shares outstanding by approximately 5%.

We remain committed to recognizing the most value for our shareholders and as we evaluate the best uses of our available liquidity, we will consider all options including share repurchases and debt reduction, practicing discipline as we allocate capital to the highest return proposition.

At today's share price, we continue to see significant value in reinvesting in our stock and are pleased to announce the Gulfport board has expanded the total amount authorized for repurchase through year end 2018.

We will continue to be opportunistic and plan to utilize available liquidity as we execute the program, which includes forecasted free cash flow generation and proceeds received from the sale of certain investments. I will now turn the call over to Donnie to expand more on our operations..

Thanks, Mike, and good morning to all those on the call. Overall, we started the year strong in the field and remain intently focused on cost discipline and adding the most value for every dollar invested.

We had a strong quarter across all areas of our operations, on track with both the operational and capital budget and we continue to adhere to the goals set when we entered 2018. We are focused in three defined areas of our business, all of which I provided on the call in February.

So let me take a moment to touch on each of these following our first quarter results. First in safety and environmental performance, let me begin by saying safety and the environment are at the forefront of everything we do and a part of our culture.

During the first quarter, we remained intently focused on maintaining a safe operation for our employees and our contract partners and being good stewards of the environment.

Second, in base production and new turn in line delivery, we delivered outstanding base well performance in the first quarter resulting from excellent facility runtime, overcoming some pretty significant weather challenges, especially in the Utica and proactively mitigating downtime, all of which are a testament to the skills and dedication of our field operations teams.

In the Utica and SCOOP, our 2017 wells make up a sizable portion of our base production and have continued to outperform our budgeted expectations. In addition, we delivered seven gross wells in the SCOOP, on target with our anticipated online dates and performance continues to track above our budgeted type curves.

And third, on cost efficiency, we are within budget and on track to deliver our capital plan in both asset areas and remain focused on delivering the full-year capital budget provided in February and reiterated again today.

Specific to service costs, we have contracts with pricing in place and services secured for the majority of our activity in both the SCOOP and Utica to address any inflationary pressure we may see as we progress throughout the year.

The contracts have been tailored and negotiated to follow our forecasted activity during the year, again leaving us confident in our ability to execute the plan and deliver on our capital program.

Lastly, the operations team continues to focus on every phase and detail of our operations and in the first quarter, generated further field level cost efficiencies as LOE was down 6% from the fourth quarter of 2017. In summary, we are working the plan, getting more efficient each day and in doing so delivered a strong first quarter.

Now on to the specifics. In the Utica, we spud 13 gross wells utilizing roughly 2.5 operated rigs during the quarter and have two operated rigs running in the play today. As we mentioned earlier in the year, our 2018 program focuses on maximizing lateral lengths and realizing economies of scale on our per foot metrics.

And while we continue to push the limit of lateral lengths, we experienced another quarter of progress at the drill bit with our days on location continuing to trend lower. The wells in the first quarter had an average drilled lateral length of 9,000 feet, an increase of 11% over the 2017 program.

And when normalizing to an 8,000 foot lateral, as assumed in our type curves, we averaged a spud to rig release of 19 days, down 8% over the first quarter of 2017 and 1% over our full year 2017 results.

Turning to completions in the Utica Shale, we began the year very active, running two completion crews throughout the quarter and completing over half of our total planned stage count for 2018.

During the first quarter, we averaged 6.3 stages per day and completed 737 stages in total, which includes 18 wells completed and 10 wells in progress at the end of the quarter, all of which Gulfport holds effectively 100% working interest.

This robust level of activity weights a heavy number of turn-in-lines to the second and third quarters for the 2018 program. Despite several weather challenges and effectively zero turn-in-lines during the quarter, production came in at 1.03 Bcf equivalent per day, a decrease of only 1% from the fourth quarter of 2017.

Again demonstrating not only the strength of our field operations, but also highlighting the quality rock we have in the Utica. The Utica has become a very consistent and reliable asset in our portfolio.

We're never done learning or working to identify where we can become more efficient to add more value and as it sits today we continue to look at every phase of the operation with our focus shifting to taking minutes, no longer days, out of each activity.

Switching over to the SCOOP, we continued to see improvement at the drill bit with five gross Woodford wells spud utilizing four operated rigs during the quarter.

The wells released had an average lateral length of 8,900 feet, an increase of 24% over the 2017 program and were normalized to a 7,500 foot lateral as assumed in our type curves, the wells averaged a spud-to-rig release of approximately 69.7 days during the first quarter, over a 3% improvement from our 2017 program average.

On top of a significant increase in our lateral footage, in the first quarter we saw an uptick in our average total depth drilled of over 10% from our 2017 program, and PD-ed (13:55) our longest well by total measured depth to date in the play of over 27,829 feet.

This well has a true vertical depth of over 18,000 feet, a 9,500-foot lateral and is located on the Western side of the acreage position testing the dry gas extension of the play on our acreage.

Taking all of this into account, we witnessed an increase on our average feet drilled per day of approximately 10% over the 2017 program and increased our lateral footage in target to nearly 98%. These results exemplify our focus to identify, implement and quickly realize efficiencies in the play.

Our efforts to continually maximize lateral lengths allows us to expose ourselves to as much resources possible with every well drilled and when coupled with our improvement in lateral targeting, we believe these are key components to maximizing recoveries in the play.

On the completion front, we turned-to-sales seven gross wet gas Woodford wells with a collective average stimulated lateral length of 6,500 feet.

With essentially no turn in lines in the Utica, the SCOOP asset really shined this quarter, providing another well set with strong production results, exceeding expectations, adding meaningful liquids growth and keeping total company daily gas production relatively flat during the quarter.

While running one completion crew during the quarter, we averaged 3.4 stages per day and completed 93 stages in total, which includes two wells completed and one well in progress at the end of the quarter.

Production during the quarter averaged 245.6 million cubic feet equivalent per day, an increase of 19% over the fourth quarter of 2017 and 43% year-over-year. We remain very encouraged by the well performance from the play and we'll continue to monitor the results as we gain additional long-term production history on a larger number of wells.

With regard to exploration activity, we reiterate our plans from our call in February and plan to spud one Sycamore well this summer, with this well targeting the upper portion of the Sycamore formation. With that, I will turn the call over to Keri for her comments..

Thank you, Donnie, and good morning to all. In addition to a solid start to the year in the field, we posted a strong quarter financially, highlighted by higher realized pricing and lower per unit expenses, improving our quarterly cash flow and cash margins.

We reaffirm our full-year 2018 D&C capital budget and forecast to invest $630 million to $685 million across our assets.

In addition, alongside earnings yesterday evening, we updated our non-D&C capital budget following the sale of our 25% interest in Strike Force and now forecast full-year 2018 non-D&C capital to be approximately $120 million to $130 million.

In total during 2018, Gulfport forecasts our capital spend will be in the range of $750 million to $815 million funded entirely within cash flow at today's strip pricing and bolstered by our approximately 80% hedged revenue stream.

As previously mentioned first quarter production came in ahead of expectations and averaged approximately 1.29 billion cubic feet of gas equivalent per day.

The production beat was primarily on the liquids front, driven by strong production results out of the SCOOP, increasing total oil production 4% over the fourth quarter of 2017 and total NGL production 7% quarter-over-quarter.

As Mike mentioned, we now forecast our full year 2018 average daily production to be approximately 1.31 billion cubic feet per day to $1.34 billion cubic feet per day, an increase of 20% to 23% over 2017.

In addition, we currently forecast second quarter of 2018 average daily production to be approximately 1.3 billion cubic feet to 1.32 billion cubic feet of gas equivalent per day.

On the realizations front, our first quarter of 2018 realized natural gas price before the effect of hedges and including transportation costs, sold approximately $0.54 per Mcf below the average NYMEX price, a 14% improvement over the first quarter of 2017 and narrower than the low end of 2018 guidance range.

Based upon our current form portfolio, including both Utica and SCOOP, and utilizing current strip prices and basis marks for end markets reached, we reiterate our expectation for basis differentials to range from $0.58 per Mcf to $0.72 per Mcf of NYMEX monthly settled price for natural gas during 2018, driven by the seasonality of natural gas and the markets we reach, we believe our differential will average on the wider end of the range during the second quarter and third quarter and narrow into the fourth quarter of 2018.

Before the effect of hedges our realized oil price came in at $2.54 off WTI and our first quarter realized NGL price came in approximately 48% off WTI, both as expected and we reiterate our expectation to realize approximately $3 to $3.50 off WTI for oil and 45% to 50% for NGLs during 2018.

Additionally, our realized prices continue to be supported by our hedge position and we realized a settlement gain of $8.9 million during the first quarter of 2018.

Our portfolio continues to underpin our 2018 capital program with approximately 80% of our expected 2018 natural gas production priced at $3.05 per MMBtu and providing a high degree of certainty surrounding the cash flow profile for the remainder of our 2018 program.

In addition, we continue to be active in building the hedge book in the outer years, meaningfully adding to the 2019 position, securing a large base load of our anticipated production at $2.84 per MMBtu. We will continue to opportunistically layer on additional hedges and basis swaps to provide line of sight to our realizations and cash flows.

In terms of cash operating expenses, we experienced another quarter of our per unit cost trending lower and all per unit expenses were firmly within or better than our guidance during the first quarter of 2018.

Our per unit operating expense which includes LOE, production tax, midstream gathering and processing and G&A totaled $0.88 per Mcfe during the first quarter, down 11% sequentially and 20% when compared to the first quarter of 2017.

When coupled with our realized pricing uplift we expanded our cash margin by approximately 12% over the fourth quarter of 2017.

Moving onto the balance sheet, Gulfport recently completed its spring borrowing base redetermination and, taking into account the reserves added at the drill bit since late fall, Gulfport's lead lenders have recommended an increase in the company's borrowing base from $1.2 billion to $1.4 billion with elected commitments under the facility to remain at $1 billion.

In addition in April, we were pleased to see that Moody's increased our credit rating and rating outlook, further highlighting our strong financial position and asset base.

We remain committed to maintaining reasonable leverage metrics and based on our projected cash flows from the remainder of the year, at current strip prices, we continue to expect to de-lever as our EBITDA growth and forecast our leverage ratio at year-end 2018 to be at the low end of our target of 2 times to 3 times net debt to trailing 12-month EBITDA.

As of March 31, 2018, Gulfport's leverage ratio was approximately 2.5 times or 2.3 times if adjusted for the $175 million of proceeds received from the recent Strike Force monetization. In addition, bear in mind we also hold a 25% interest in Mammoth Energy Services totaling 11.2 million shares valued at over $350 million today.

I will now turn the call back over to Mike for closing remarks..

Thank you, Keri. In closing, during the first quarter we continued to show consistency in our ability to execute operationally by over delivering on production, reducing expenses and expanding margins.

We are off to a strong start on aligning 2018 total capital spend within cash flow and created value by returning capital to our shareholders through our repurchase program.

As mentioned on our call in February, this goes beyond just 2018 and while we have not provided specific outer year expectations, for 2019 we continue to forecast low-double digit growth within cash flow at current strip prices.

Our commitment to demonstrating capital discipline goes beyond a strategic goal and is highlighted by the board's decision to incorporate a corporate level return metric, return on average capital employed in our 2018 compensation metrics, measuring the value of every dollar that we invest and demonstrating our commitment to the Gulfport shareholders.

This concludes our prepared remarks. Thank you again for joining us for our call today and we look forward to answering your questions. Operator, please open up the phone lines for questions from the participants..

Thank you. At this time we'll be conducting a question-and-answer session. Our first question comes from Neal Dingmann with SunTrust Robinson Humphrey. Please go ahead..

My first question for either Donnie or Paul.

Realizing the capital discipline that you've now outlined and not having full guidance out there or any sort of guidance out there for 2019, my question in time (24:34) about dropping from four rigs to two rigs in the SCOOP, but I'm wondering when the plan maybe would be to start accelerating that given the returns that you're seeing.

I mean looking on your slides, particularly in that Woodford condensate window type curve, that obviously, given the how strong those returns are, any thoughts you have when you would start accelerating?.

Okay Neal, this is Mike. You know, we don't have a lot of specific guidance out for 2019 yet. I can tell you that we remain committed to a capital discipline program not only for 2018 but for 2019 and beyond.

As we sit today, I think our capital for 2019 should be relatively flat to our 2018 program, probably again as we sit today, rig counts probably similar to 2018. You've got to keep in mind that we are going to exit 2018 with another large DUC inventory. So we have the ability to ramp up completions versus having rig activity to bring new wells on.

So that's certainly a nice arrow to have in our quiver. Also remember that our non-D&C capital spending is going to go down pretty significantly in 2019, probably by two-thirds. So our capital efficiency calculation is going to be much better than it has historically. That's about as specific as I can be at this point..

No, that helps. And then I guess, just to dovetail into the capital discipline, when you look next year.

And I mean, I guess is it fair to say, Mike, all these things are on the table, as far as again, once again between just pure production growth or stock buyback, debt, all of that would be on the table as well next year?.

That's right. We've messaged lower teens growth next year. I mean we'll wait and see what's appropriate as we get closer year end.

But you're exactly right, with the free cash flow that we're generating in the back half of this year with our program that we have plus the other anticipated liquidity events it'll be an evaluation at the time of the best use of proceeds so the balance will be between paying back debt and/or additional stock repurchases..

And then just lastly for Donnie, did you say one Sycamore well for the rest of this year or what's sort of the plan, will most everything be Woodford the rest of this year?.

Yeah, that's right, Neal. No, we're – this is Donnie. We're right now going to be spudding the one Sycamore well summertime looking at that upper Sycamore, if you recall. The first one was in the lower Sycamore, tremendous results there, inline really with our Woodford well.

So, we'll spud one more this year, and then the rest of our program is pretty much weighted to the Woodford..

Perfect. Nice quarter, guys..

Thank you..

Thank you. Our next question comes from Ron Mills with Johnson Rice & Company. Please state your question..

Keri, maybe to start with you on the cost side. You highlighted everything kind of coming in at or below the guidance range.

Is the lack of change in the cost guidance, is there some conservatism built in there? It would seem that as you continue to have volume growth that a lot of those unit costs would come down, and what kind of impact can that have going forward?.

Sure, Ron, yes. It is still early. It's first quarter, so we'll continue to watch those. And if our costs continue down throughout the year, you might see us adjust those. But again, it's still early and nothing was unexpected or anything, so things came in kind of where we expected this quarter..

Hey, Ron. This is Ty. As well, on the midstream side, as we go out throughout the year this year in Utica, we'll start bringing more wells into the centralized compression. And so, that will tend to trend things up a little bit. So, that's still a factor..

Okay, great. And then....

But still within the range. Yeah, still within the range..

But still within the range, okay..

Right, yeah..

And then, Mike, you mentioned at the very end and it was in your press release, the compensation metrics you now have a return on capital employed. I think you also have a total stock return.

When you look at management incentives and the way the compensation structure has changed, how much of that now is pointing to that capital to put discipline and even further aligning you all with investors?.

Well, certainly we took a hard look at this this year, the comp committee, the board, management team and made sure that the performance metrics set for expectations for the Gulfport team were appropriate as it related to investors and shareholders and what they are looking for.

And so, we've actually allocated 55% of our performance metrics to metrics that have to do with real return to shareholders two different ones, but we certainly think it's important that management teams are performing up to shareholder expectations..

Great. And then one last one maybe for you, Donnie, just maybe a follow on to Neal's question. But when you think about the SCOOP as you're now testing the dry gas, you seem to have the wet gas figured out.

From your standpoint, how do you think about over the next 12 months to 24 months exploration of Springer, Sycamore versus potentially increased development activity, if – to the extent the free cash flow is there and within the different product windows, if you could kind of design your plan?.

Yeah, Ron, it's Donnie. I mean look, we're in the process of kind of appraising our entire position across the SCOOP vertically as well as aerially. So when we're testing this dry gas side of our acreage position, we're in a number of non-operated Springer wells. We've seen a lot of success, of course as you've seen, in the Woodford.

Now, we've got the Sycamore we're working on. So we'll continue to appraise our position, try to understand how it all fits together in our go-forward development and kind of see what our plans are going forward..

Great, thank you..

Thank you, Ron..

Our next question comes from Holly Stewart with Scotia Howard Weil. Please state you question..

Good morning, gentlemen, Jessica..

Hi, Holly..

Just, Mike maybe a bigger picture question. You didn't need a liquidity event in the first quarter to just start buying back the stock and now you've got one under your belt. So, it looks like your EBITDA growth in the back half the year will kind of get you down to where you want to be from a leverage perspective.

So, I don't want to put words in your mouth, but it seems like maybe you're leaning toward further buybacks?.

Yeah. You saw in the announcement this morning, Holly, that the board approved an additional $100 million of stock buybacks and certainly should we generate more cash in the back half of the year with proceeds from a liquidity event, we sort of have the ability to increase that.

You know we had, with the first $100 million tranche, we certainly had line of sight to the Strike Force liquidity event, which gave us a lot of confidence to get started on that quickly, be aggressive and opportunistic. Obviously, as expected, we borrowed a little money here in the first quarter and that was per the plan.

So, as we move forward, the excess cash flow as I mentioned to Neal will be a balance of debt repayment and stock repurchases, and then now depending on how much we could possibly recognize and some other liquidity events, we'll have to evaluate it at that time..

Okay. That's great. Maybe just one for Ty. Ty, I think if I look at your K, it looks like you've got about $150 million of firm capacity out of the SCOOP, and then that increases by another call it $200 million once Midship goes into service.

So, just given kind of somatically what we're hearing on MidCon and Permian diffs (33:50) and take away and all the bottlenecks there.

Can you just maybe remind us where your gas exposure in the SCOOP lays, both just on an FT perspective, as well as on those uncovered volumes?.

Yeah, Holly, this is Ty. Yeah, the SCOOP , overall SCOOP's positioned more in the eastern part of the state, our position in the SCOOP is the same way which means we have more of a direct path to the Gulf Coast, where that's East Texas or Louisiana or even further on over to Florida.

So, what we've done so far is, I feel like we've made some really good progress to start out with a strong foundation when we inherited and then took over the asset with some good, firm – a little bit of transportation, as well as firm sales that secured our flow assurance.

Then we quickly, as you mentioned, anchored that Midship project, we feel like that is a really good project not only for us but for the basin.

And then we're continuing to be disciplined with regards to our growth, making sure that whatever transportation we take on or firm sales, any kind of firm arrangement, is lined up with our growth and development, as well as diversified to our different points. And so, we feel like it's – we've made some good progress, we'll be the right fit.

We have good exposure and we'll continue to have exposure outside of the MidCon area that is seeing some pressure from Permian as well as STACK and SCOOP results..

Yeah, that's great.

And then if I can sneak one more in, Ty have you received notice on your startup of capacity on Rover yet?.

Yes I think our primary delivery points will be in service come June 1st..

Great. Thanks, guys..

Thank you, Holly..

Thanks, Holly..

Our next question comes from David Deckelbaum with KeyBanc Capital Markets. Please state your question..

Good morning, guys. Thanks for taking my questions..

Good morning, David..

Yeah..

I was hoping to maybe to get a little bit more color on the outperformance that you are seeing in SCOOP right now, evidenced with the first quarter results and the guidance raise throughout the rest of the year, just curious what you are seeing right now, is it – sort of a shallower decline in the initial periods relative to the type curve, is it lesser amounts of downtime, just any color there where you feel like you're beating your internal projections?.

Hey, David. This is Donnie. Yeah. I mean, I guess I'll go to guidance as well. If you think about our beat here in the first quarter and even second quarter raise, you know that's a combination across both assets really, the base production performance, Utica and SCOOP.

If you think about our base production, about – large percentage of that is our 2017 new wells that we brought on and those wells in both assets are really outperforming our budgeted forecast.

And then, as you mentioned the SCOOP, we brought on the seven new wells and you add that on and their continued outperformance of our type curve really left us no choice but to increase our guidance. Yeah.

And in the SCOOP, we're definitely seeing that early on initial rates are much higher, but you know something, I think I mentioned in the first quarter call back in February, this pressure management that we worked on in the Utica for a number of years where we're really focused on, not initial rates, but long-term production and preserving that frac that we just installed in the well.

We're doing that in the SCOOP now and gathering more data on it. And as we get more and more of that data, we'll continue to see how the performance plays out..

And David, it's Mike. I think it's important to note, Donnie said this in his script. But, just think about what we've been able to do with these wells, the way they're producing, we're just coming off the first quarter of the year, which is the hardest part of the winter, we had a very challenging winter really in both fields.

In Ohio, we had not only cold weather, but we had a lot of rain, a lot of water. And the fact that these wells continue to perform very well in spite of the fact that we probably had some downtime, I think speaks well for the performance in SCOOP and Utica.

So, really pleased with the way these wells in both areas are performing and happy to be able to increase our guidance a little bit..

I appreciate that, Mike. And then, I guess just the way that things stands now, I know that you talked sort of very high level about 2019.

But, is it fair to say I guess that there is much more of a balanced capital program between the two assets as you go into next year if you're going to end up running a two-plus rig program I guess on the SCOOP and roughly a two-rig program in the Utica?.

Right. So, you've seen us, David once we acquired SCOOP last year, I think we were about 80/20 on a capital allocation. This year, it's about 70/30.

I think, you could continue to see that kind of trend in capital allocation, certainly in Utica next year will be kind of the final year of the holding acreage activity that we need, once we get beyond that, we're pretty much done.

Also we certainly like the liquids that we see in the SCOOP, which are priced in a better way ,a little better return, a little better margin there. So expect to see a continued trend towards some allocation of capital towards SCOOP.

I'm not saying we're not spending money on Utica because we certainly are, but you know there will be some trend that way..

Appreciate the color, guys. Thank you..

Okay. Thank you, David..

Our next question comes from Jason Wangler with Imperial Capital. Please state your question..

Hey, good morning..

Hi, Jason..

I was wondering you talked about the capital budget kind of two-thirds front end loaded, does that include also the non-D&C and even the non-op side of it, I was just kind of curious on the color on that?.

It does. It includes that as well..

Okay.

And then as you think about second half of the year, you know, that remaining third so to speak, obviously you're dropping a couple of rigs basically in mid-year, should we think of that as being pretty smooth throughout the second half of the year, or is there going to be kind of a deceleration throughout that period?.

Jason, this is Donnie. Yeah, if you think about what I think I mentioned it in my comments earlier on, we completed half of our stages in the Utica in the first quarter.

If you look at our plan going forward, we're heavily weighted front half of the year, so most of our completions will be done mid-year, we'll have SCOOP continuing on as more of a continuous program this year. So I would weigh it toward the third quarter and continuing the trend down from midyear on..

Yeah. And Jason, this is Paul, from a rig activity perspective, we would expect those two rigs to come out in the SCOOP pretty much at the same time here in the middle of the year. So, there won't be a trending down on the drilling side, just simply those coming out at the same time..

Great. I appreciate it. I'll turn it back..

Thank you..

Thanks..

Our next question comes from John Nelson with Goldman Sachs. Please state your question..

Good morning..

Hi, John..

And congratulations on the share repurchase leadership..

Thank you..

Thank you..

Most of my knocks have been hit, so I just wanted to follow up on Holly's question.

As we think about the Strike Force proceeds, could you also just maybe throw into the mix what appetite if any you would have to maybe use all or a portion of that for acreage bolt-ons?.

Well, we're always looking for bolt-on acreage to fill in existing units. That's kind of a regular part of our plan. Certainly as we move forward, are you asking if we could be more aggressive in that; I suppose it's possible, I mean we do what we can anyway with the existing cash flow that we have in the existing plan.

We're estimating to spend $120 million to $130 million on leasehold, as a result – we moved that down a little bit this morning because of the – we took the Strike Force Midstream spend out of it, but we've got a budget and most of that will be captured in that budget honestly.

So, again, I think most of the money that we're talking about from other liquidity events goes back to what I said earlier which was the allocation between debt repayment and stock buybacks..

So, yeah I was thinking about kind of more opportunistically as opposed to maybe just a fill-in and so I guess my interpretation of your comments would be it's lower in the pecking order than equity repurchase and debt repurchase, is that...?.

It is lower in the pecking order and you have to consider that we have pretty robust levels of inventory already.

So I'm not sure that we feel it's necessary to add large blocks of acreage, certainly to fill-in into our existing units makes a lot of sense, but I'm not sure I think it's a good allocation of capital just to add inventory at this point..

John, the thing I'd add to that as well is, we're very focused right now on de-risking our upside inventory in the SCOOP as well. We may in fact have significant kind of latent inventory that that can be de-risked through exploration efforts there before we need to buy any sort of additional acreage ever..

That's a great point, so I guess maybe if we threw that in the mix for kind of discretionary capital, is there any appetite to maybe do a few more delineation tests in 2018 or....

Not 2018 – this is Mike. It's a good question. But 2018 is static at this point really, honestly, where we've got a good plan, we're delivering some growth, we're capital disciplined. We're actually throwing off some free cash flow in the back half of the year.

I think that's more a discussion probably for our 2019 program and we're having those discussions now..

It makes a lot of sense. Congrats again on the solid execution..

Thanks, John..

Thanks, John..

Our next question comes from Biju Perincheril with Susquehanna. Please state your question. Okay. They took themselves out of queue. Our next question comes from Oliver Huang with Tudor, Pickering, Holt & Company. Please state your question..

Good morning, everybody..

Good morning..

Good morning..

Just one quick question for me. The SCOOP looks like the biggest opportunity in the portfolio to further reduce costs.

So, just wondering where well costs are trending for a 7,500 foot lateral today and maybe talk through the primary levers on the horizon to further bring this down in the coming quarters?.

Yeah, Oliver, this is Donnie. Yeah. I guess where I'll start and I'm going to open it up more than just the drilling side, the total well side. But if you look at on the drilling side, we've got a number of wells now coming in around that 45 day, 50 day spud to rig release timeframe.

And if you recall, just we've got a little over 20 wells probably we drilled now, so that's a pretty good improvement in a small number of wells to learn on.

But if you look at the drilling side of things, we're really focused on consistency and improving on what we're doing and I think the two things that I've seen making the most progress for us is, one on the planning side, that, really that's subsurface understanding and identifying those geologic features, so we select the best well location as well as the best well plan to mitigate those risks.

And then on the drilling side, the team has really done a great job of finding different combinations of bottom hole assemblies and bits and mud programs. Depending on the hole section and the particular geologic setting.

Open it up a little bit on the completion side too, if you think about 2018, we're doing, it's a much more level loaded program than we had last year. So you're seeing efficiencies with more consistency in program and crews.

And then on the zipper fracing side, Utica has been in that position for a number of years now, but now in the SCOOP we're doing about 80% of our wells are zipper frac versus last year that was probably less than 50%. So, a lot of efficiencies we're seeing gained there..

Okay. Thank you.

And what is the well cost at there today, do you happen to have that?.

Yeah, Oliver. What I – this is Paul. What I'd point you to it as we look at leading edge well cost, the – what we're showing in the slide deck available on the web right now, that is reflective of our current leading edge well cost as we view it today..

Okay. Perfect. Appreciate the color..

Thank you..

Our next question comes from Leo Mariani with National Alliance Securities. Please state your question..

Hey, guys. Just wanted to focus a little bit more on SCOOP. Obviously, we've had a huge move up in oil prices over the past couple months while gas kind of continues to trade a little bit sideways.

Just talk about your sort of ability and potential desire to kind of shift more capital within SCOOP to some of the oilier parts of the acreage you know as we work our way through this year and into 2019?.

Well, you know it's – it's a good question, Leo. So we're already drilling the Woodford wet gas which is – has a big liquids component. Certainly the results to-date have reinforced why we really like the SCOOP.

But yeah certainly as we move forward and oil prices continue to be strong, liquids prices continue to be strong, you're going to see us allocate more capital to SCOOP and you're going to see us trying to drill some of our highest liquids acreage as much as we can.

We, as Paul mentioned earlier, we've got some delineation to do in Sycamore and Springer and we'll continue to do that as well. Those could open up some possibilities for us, too. But yeah certainly it's a great opportunity for us.

We love SCOOP, because it's a multi-phase opportunity much like the Utica was, and you'll see a shift in capital as appropriate in conjunction with commodity prices..

Okay.

I guess just question on the buyback, you sort of addressed this in your prepared remarks, but just curious as to how are you guys going to look at the decision on whether or not to pay down debt with free cash flow in the second half of the year versus buyback stock? What are kind of the key things you're looking at to sort of make that decision?.

Well, you know I think we're sensitive to our leverage and the revolver borrow in the first quarter was as expected, but we'd like to get that paid off as quickly as possible. But look we – in the back half year, we're generating free cash flow and we also have some potential other liquidity events.

So we'll try to get that borrowing base payback quickly and then we have lots of options with that free cash flow and other liquidity events as we think about stock buybacks..

Okay that's helpful and I guess just on CapEx, just thinking about it here, obviously you talked about two-thirds in the first half, should we kind of see CapEx kind of similar as we work our way into the second quarter and then kind of a big spike down in third quarter and then flat in the fourth quarter, how do we just think about that from a high level?.

Yeah, Leo this is Donnie. Yeah that's – I would look at second quarter very similar to first quarter but then as you go past that into the second half the year it continues to trend down fairly significantly..

We do expect a slight tick down in 2Q, but it does trickle off very heavily in the back half of the year, Leo..

All right. Thanks, guys..

Thank you.

Thanks, Leo..

Our next question comes from Jeffrey Campbell with Tuohy Brothers. Please state your question..

Good morning and congratulations on the quarter..

Good morning, Jeff..

The successful Sycamore Serenity well was drilled, I think more or less the middle of your acreage.

Could you provide a little color on where the next test is going to be located? And also you know, what's the thought behind targeting the upper Sycamore? Does this imply that there might be two landing zone potential on some of the acreage?.

Yeah. Jeff, this is Donnie. Yeah, you're correct on the Serenity. The well we'll be spudding for the upper Sycamore is a little northeast of that, I don't have the exact location in front of me now, but it's northeast of that still in our core area.

And then if you think about the Sycamore, yes, I mean I think as we look at is, just like we do the Woodford, there is potential for multiple targets within each of those intervals.

So we won't really understand that early on as I said earlier, we're not only testing aerially but we're testing vertically to understand what targets we do have and I think Paul alluded to it on the previous question that that really adds to our location count, when you think about Sycamore pretty consistent as far as footprint across the Woodford, so a lot of upside to us there.

You're getting up closer to the Caney in that upper Sycamore's well. So it could be a little more oil prone, more liquids prone there. So we'll see as we get that well down and online..

The exciting thing Jeff, for us is the – and we really like the Sycamore and Springer opportunity. The Sycamore is a lay down blanket opportunity pretty much across our entire acreage position in the SCOOP, so great opportunity here, as Donnie mentioned, some other possible horizons as well.

So we're certainly anxious to get this next Sycamore, this upper Sycamore well down and see what we find there. But I think there's a lot of upside here in the Sycamore and the Springer for us, but we'll have to get some more re wells down, Jeff and see what we have..

That's good color. And let me just follow up with the observation that with fairly de Minimis production, and the SCOOP absolutely oil volumes rising.

I was wondering if it's about time to call it a day on the Southern Louisiana asset or does it not really distract much from your other operations?.

Oh, listen we'll always do what's appropriate. It's southern Louisiana generates its own cash flow for its CapEx program. So it's certainly not a financial or physical distraction to any of our activities in the SCOOP or Utica. But we always continually evaluate opportunities and we're open to that. But you know no sense of urgency there..

Okay. But it's not a distraction, that's good. Okay. Thanks a lot..

Thank you..

Thank you..

Ladies and gentlemen, we're now out of time for questions. I will turn the conference back over to management for closing remarks. Thank you..

Thank you. We appreciate your time and interest today. Should you have any questions please do not hesitate to reach out to our Investor Relations team. This concludes our call..

Thank you all parties may disconnect. Have a good day..