Liquids-focused driller Gulfport Energy is a very interesting energy company. Unlike most North American production companies, Gulfport doesn't produce a lot of natural gas. In fact, last year 93% of its production was oil and NGLs, which provide the company with high-margin cash flow. Investors are starting to take notice and the stock has more than doubled over the past year. However, I see three very compelling reasons to own Gulfport.
Very oily production
As I mentioned, 93% of Gulfport's production last year consisted of oil and NGLs. That's very impressive when you consider that most producers would love it if just half of their production were liquids. For perspective, despite investing heavily to grow its liquids production, 74% of Chesapeake Energy's production is still natural gas. Even Devon Energy's natural gas production is still more than half at 59% despite double-digit oil production growth.
Gulfport produces oil and NGLs from a diverse portfolio of assets including the Canadian oil sands, the Utica Shale, Louisiana and the Permian Basin through its 21.4% ownership interest in Diamondback Energy. In the year ahead, Gulfport expects to produces 21,370 to 22,192 barrels of oil equivalent per day, which is growth of more than 200% over last year. The company has a visible path to further liquids rich production growth with several opportunities for additional upside across its portfolio.
Rock-solid balance sheet
Because Gulfport has been focused on high-margin liquids, its balance sheet is very strong. The company has $226 million in cash and just $299 million of it in debt to go with an undrawn credit facility. For a company with a market capitalization of just under $4 billion, those are very strong numbers. For perspective, Devon Energy's net debt to capital ratio is one of the best at 22%. Meanwhile, Gulfport has virtually no leverage, which is nearly unheard of in the industry. That strength will go a long way in helping the company fully develop its oil sands assets as well as its position in the Utica.
Utica sweet spot
While the Utica is loaded with potential, it has not developed into the top-tier oil play that Devon Energy and Chesapeake Energy had hoped. That's caused Devon to decide to exit its position in the play while Chesapeake is looking to reduce its position. Gulfport, on the other hand, has found the best spot in the play and is increasing its acreage. That's no surprise when you consider that its first 14 wells averaged an initial rate of 3,055 barrels of oil equivalent per day. While those wells were certainly more gassy than expected, Gulfport sees the Utica as a catalyst to substantially increase its production and reserves.
Foolish bottom line
Gulfport has a lot of the characteristics that make for a very solid energy investment. Almost all of the company's production is in high-margin liquids, it has a top-notch balance sheet, and it's found the sweet spot in an emerging liquids-rich play. That being said, I do have some concerns with the company so stay tuned to Fool.com for some areas that investors need to watch.
However, when you add it all up, Gulfport is where a company like Chesapeake Energy would like to be as it's already liquids-rich and has a pristine balance sheet. That being said, it's hard not to be intrigued by the compelling value that Chesapeake's shares are currently trading. While many issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.
The article 3 Reasons to Buy Gulfport Energy originally appeared on Fool.com.
Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy and has the following options on Chesapeake Energy: long Jan. 2014 $20 calls, long Jan. 2014 $30 calls, and short Jan. 2014 $15 puts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.