Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Paul Heuwagen [ph] -- IR

Mike Moore – SVP & CFO

Jim Palm -- CEO

Jim Doherty [ph] -- CEO, Windsor Energy

James Rubin -- Manager of Financial Planning and Analysis, Grizzly Oil Sands

Analysts

Ron Mills -- Johnson Rice

Neal Dingmann -- Dahlman Rose

David Kistler -- Simmons & Company

Gary Nuschler -- Jefferies & Company

Sven Del Pozzo -- C.K. Cooper

Ross DeMont -- Midwood Capital

Gulfport Energy Corporation (GPOR) Q2 2008 Earnings Call Transcript August 7, 2008 12:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Gulfport Energy second quarter 2008 earnings conference call. My name is Sylvana, and I will be your coordinator for today. At this time, all participants are in a listen-only-mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Paul Heuwagen [ph], Investor Relations. You may proceed, sir.

Paul Heuwagen

Thank you, Sylvana and good morning. Welcome to the Gulfport Energy Corporation second quarter 2008 earnings conference call. I am Paul Heuwagen, Investor Relations. With me today are Mike Liddell, Chairman of the Board; Jim Palm, Chief Executive Officer; and Mike Moore, Chief Financial Officer. Also with us today are Jim Doherty [ph], Chief Executive Officer of Windsor Energy; and James Rubin, Manager of Financial Planning and Analysis for Grizzly Oil Sands.

During this conference call, the participants may make certain forward-looking statements relating 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 these that are indicated in these forward-looking statements due to a variety of reasons. Information concerning these factors can be found in the company's filings with the SEC. In addition, we may make certain reference to other non-GAAP measures. If this occurs, the appropriate reconciliations to the GAAP measures will be posted to our website.

An updated Gulfport presentation was posted this morning on our website in conjunction with today’s earnings announcement. Please review at your leisure.

At this time, I would like to turn the call over to Mike Moore.

Mike Moore

Thanks Paul. Thank you for joining us for our call. For the second quarter, Gulfport is pleased to report net income of $14.9 million, or $0.35 per diluted share, based on average diluted shares outstanding of 43.1 million, compared to net income of $11.5 million and earnings per share of $0.26 per share during the first quarter of 2008. EBITDA for the second quarter of 2008 was $26.1 million, an increase of $3.7 million compared to the first quarter of 2008, and another record quarter for Gulfport.

For the second quarter, production was approximately 445,000 barrels of oil equivalent or 4,886 barrels a day, up approximately 5% sequentially from the first quarter and 12% year over year.

Gulfport’s production mix for the second quarter was approximately 92% oil and natural gas liquids and 8% natural gas. For the month of July, production averaged approximately 5,021 barrels of oil equivalent per day. Allocating according to field, July production was as follows -- 4,277 barrels per day from the South Louisiana, 639 BOEs per day from Permian and 105 barrels of oil per day from the Bakken.

Production has now increased to 5,964 barrels of oil equivalent per day for the first six days of August. Field level production for the first six days is as follows -- 5,158 barrels a day from South Louisiana, which includes 450 barrels a day from our new well at Hackberry, 702 barrels per day from the Permian and 105 barrels a day from Bakken.

Realized price for oil for the quarter after the effects of our fixed price contracts was $81.85 per barrel. Average realized price for gas was $12.22 per Mcf, and average realized natural gas liquids price was $1.46 per gallon or $61.45 per barrel. For the remaining six months of the year,

Gulfport has fixed price contracts for 3,500 gross barrels per day at an average price of $86.52. For 2009, Gulfport has fixed price contracts for 3,000 gross barrels per day at an average price of $89.06 per barrel. A schedule of our fixed price contracts is available on our website through our Investor Relations page.

Lease operating expense for quarter was $4.8 million, or $10.81 per BOE. For the first half of 2008, LOE was $8.5 million or $9.85 per BOE. LOE for the year is still projected to be between $9 to $10 per BOE.

For the quarter, G&A was $1.8 million, or $4.13 per BOE. G&A for the first half of 2008 was $3.5 million, or $4.06 per BOE. Full year G&A is still projected at $3 to $4 per BOE.

CapEx spending for quarter two in 2008 activities including Canada was $26.8 million. The company had $89.1 million of total debt outstanding at the end of the second quarter and currently has $84 million drawn against our $90 million credit facility. We were very pleased with the overall performance for the quarter.

Now I would like to turn the call over to Jim Palm to cover our operational highlights.

Jim Palm

Thanks Mike. As many of you know, we closed a major acquisition in the Permian at the end of 2007. Our plan for 2008 was to live within our cash flow by turning back drilling in Southern Louisiana early, while ramping up drilling in the Permian. We also started ramping up in the Bakken and executed the winter drilling program for Grizzly.

Now we are back to drilling in Southern Louisiana and placed with results in all of our areas. Common things in these areas are that -- one, we have a large resource base in place. Two, we are able to exploit the resource using new technology. And three, we can show repeatable results. Solid production growth and continued development of our high impact projects characterize the second quarter.

Southern Louisiana continues its role as our cash flow cornerstone and production was up as compared to the first quarter. While our Permian field is still in its infancy, we now have five rigs drilling and we expect to reach our target of 35 to 45 wells in 2008. In the Bakken, we have acquired an acreage inventory that stacks up among the best. Our group has contracted an H&P FlexRig and it is now drilling the second operated well. Our activity in the play is ramping up with more wells and bigger working interest. Southern Louisiana produced at an average of 4,336 barrels of oil equivalent per day in the second quarter up from the first quarter daily average of 4,021 barrels of oil equivalent per day.

As you may recall, we drilled two wells early in 2008 at West Cote Blanche Bay and then released the rig. We brought the rig back to the field in early July. We are drilling our third well since brining the rig back and we expect to drill approximately 10 wells at West Cote in the second half of 2008 bringing us to a total of approximately 12 wells at West Cote for the year.

In the second quarter, we were able to grow our production at West Cote through increased operational efficiencies and through the normal cycle of up-hole recompletions. As most of you know we average around six pay zones in every well and that makes Gulfport’s production more sustainable to typical Southern Louisiana wells.

At Hackberry, we brought a rig back in the second quarter and have drilled four additional wells. As you may recall, we have 17 permitted locations at Hackberry. We can now report that all four new wells drilled look to be productive. Currently we are in the process of completing and testing the wells, and so far we are pleased with what we see.

Now let’s turn to our Permian acquisition and our Bakken play. At this time, I would like to introduce Jim Doherty, Chief Executive Officer for Windsor Energy, the operator of our Permian and Bakken investments. Jim is an integral part of the day-to-day operation of Gulfport’s interest in these areas and has a wealth of experience in numerous resource plays. Jim?

Jim Doherty

Thank you, Jim. In December of 2007, Gulfport and Windsor jointly acquired 8,200 net acres in the Permian basin with each party taking a 50% interest in the project. During 2008, we commenced an aggressive drilling program in the Permian with plans to drill 35 wells to 45 wells. We have ramped up our activity during the year with five rigs currently running in the Permian, and we expect to maintain this rig level through the remainder of 2008.

Through June, Windsor and Gulfport spud 13 wells and have brought 8 new wells on production. It takes about three weeks to drill a well to a depth of about 10,400 feet and an additional three weeks to complete the well and bring it on production. The wells typically increase oil production for about three months peaking at 90 to 100 barrels a day, while the produced load water drops off rapidly. From wells spud to peak oil and gas production takes a total of about four to five months.

Production from the 8 wells completed that we now have production on meets the current expectations that we had for the new wells. We originally projected well costs to be approximately $1.7 million per well, however the initial well costs to date have come in higher reflecting some start-up costs as well as increased prices for casing, tubing and other materials, supplies and equipment.

Total drilling and completion costs for the remainder of 2008 are expected to average about $1.8 million gross per well. We are mitigating these costs by changing out underperforming rigs and locking in prices for casing, tubing, and other key supplies and equipment. With these steps, I believe we’ve overcome the start-up challenges. We expect to see continued improvement in costs due to the economies of scale in this project. However, increased service costs, casing costs, etcetera will likely offset some of these savings. A number of wells drilled and brought online, production so far this year is behind the original schedule due to the slower startup. However, with current number of rigs drilling, we expect to still drill 35 to 45 gross wells in 2008.

Assuming that we continue to drill 40 wells per year, we will be drilling in the Permian on 40 acre spacing for the next 3.5 years. In addition with the possibility of downspacing to 20-acre spacing in the future, the drilling program could be extended for a much longer time frame. We believe that these Permian assets have a tremendous upside value, especially given the thick pay integrals below oil recoveries and the technology advantages that we have seen in unconventional projects.

Now on to the Bakken -- Gulfport and Windsor together have established a significant acreage position in the Bakken. Interest in the play in split 80/20 between Windsor and Gulfport with Windsor being the operator. Windsor currently has two rigs under contract in the Bakken with the second rig expected to commence drilling in the fourth quarter. With these two rigs, we expect to spud between 4 wells and 6 wells in 2008. Windsor spud its first operated Bakken well on May 31. This well was drilled in Mountrail County, North Dakota in the prolific Parshall field in the Bakken play.

The total measured depth of the well is 14,789 feet and has a horizontal lateral length of 4,900 feet. Excellent shows were encountered in the Bakken and the well carried a player [ph] throughout the drilling of the horizontal section. The well is currently waiting on completion, which is schedule for mid-August.

Windsor has since spud its second well 1 mile south and is currently drilling at a depth of 3,510 feet this morning. Gulfport and Windsor have leased in excellent areas and we believe with this acreage comprises one of the highest quality positions in the North Dakota/Bakken play. Furthermore, we were able to do so early in the plays development, which allowed us to realize significantly lower entry costs. The results that we are seeing from initial production rights in surrounding acreage continue to be encouraging to us, and lead us to believe that we are well positioned to fully exploit the play.

Now, I would like to turn the call back to Jim Palm to expand on Gulfport’s activities in these areas.

Jim Palm

Thank you Jim. We are very excited that we are running at the five-rig break in the Permian and are now beginning to realize the true potential of our investment. Production from the Permian averaged 479 barrels of oil equivalent per day at the Gulfport in the second quarter. July production averaged 639 barrels of oil equivalent per day as it began showing the effects of wells drilled early in the second quarter. In the Bakken, we are pleased to announce that we’ve expanded our acreage position from approximately 14,000 net acres reported on our last call to over 16,500 net acres and we are continuing to actively leasing the area.

Over a quarter of our acreage is located in Mountrail County where some of the outstanding wells have been announced. For instance, EOG Resources, which offsets much of our acreage in the area recently reported peak production rates of 3,744 barrels per day and 3,225 barrels oil per day from wells that are located 3 miles to 5 miles to the east of the new Windsor operated wells. As you can imagine, we are encouraged by what we hear and we are looking forward to the test results from the first Windsor operated wells. And incidentally, Gulfport owns 2.5% interest in the EOG well that reported the 3,225 barrels oil per day, peak production that I just mentioned.

So, at present we are participating in or elected to participate in 37 wells in the Bakken in 2008. Associated year to date capital commitments totaled approximately $5 million, and we think we are on track to reach approximately $8 million to $10 million for the year. For the second quarter, production from the Bakken totaled approximately 6,500 barrels of oil equivalent, net to Gulfport. While this is small in relation to Gulfport’s overall production, we expect the number to increase significantly as we ramp up activity as we begin to participate in more wells in areas in which we have a greater net revenue interest.

We have about 16% of the first Windsor operated well, and by the way we actually have paid out in as little as four months from some of the EOG wells in which we participated. So, we know we are in a great area. Overall, we are pleased with the way the play is developing and we continue to explore opportunities that might accelerate our expanding presence.

And now I would like to introduce James Rubin, Manager of Financial Analysis and Planning for Grizzly Oil Sands for an update on Gulfport’s involvement in the Canadian oil sands. James?

James Rubin

Thanks Jim. Over the last quarter Grizzly has conducted a search for new senior executive management. Our plan is to conduct Grizzly’s operations out of our Calgary office with the new team. We are in late stages of that effort and hope to announce our new management shortly. We continue to move along the application for Algar Lake, our first 10,000 barrel per day project. For the application, the field work for environmental studies is complete, the initial front-end engineering study is complete, and the reservoir simulation studies will be done shortly. A draft of the application has begun. We expect Grizzly’s new management to become significantly involved in the late stages of this effort.

We have been pleased to see successful capital raises by several companies comparable to Grizzly over the last few months. Between Athabasca Oil Sands, OSUM, and MEG there has been over $1 billion raised by private oil sands developers since the beginning of the year. Included in the newly posted Gulfport presentation is an updated version of our comparables for reference.

I want to highlight that we compare favorably with these comparables in terms of the timing of our expected first commercial production. With Algar Lake lies within a depositional environment that has been proven by other operators, some other companies are attempting to exploit resources that will require pilots to determine producibility and commerciality. We are exposed to these resources, such as carbonates and shoreface, McMurray/Wabiskaw Deposit as well because of our intentional effort to acquire leases that were spread around the play. While we are happy to let others true up resource from which we will also benefit, we feel our own initial project is a significantly safer bet. This can be demonstrated most effectively by the expected timing of our initial production in comparison to others. There is a rational premium in the comps for companies with closed first production.

I want to take a moment to step through some relevant industry information for the oil sand. First, bitumen as a commodity has been rising in value quickly. Although not as simple commodity value, as there is no index price, I would like to highlight a few data points. In 2006 and 2007, when WTI crude averaged roughly $70 a barrel over the two-year period, Lloyd Blend in Edmonton traded for roughly $46 per barrel. Lloyd Blend is a marker for Canadian heavy crude after blending up the pipeline specification roughly low 20s API. This was roughly 35% discount. In Q2 ’08, WTI averaged roughly $124 per barrel and Lloyd averaged roughly a $100 per barrel or significantly improved 20% discount. Bitumen discount also declined.

Petro-Canada reported in Q2 ’08 that they sold their bitumen from MacKay River on average for roughly $75 per barrel, up three times from the 2006 and 2007 average of $26 per barrel. Another data point. Conoco recently declared Great Divide commercial in March of 2008 after beginning steam injections in September of 2007. They have achieved as high as 9,000 barrels per day of production, already out of a nameplate 10,000 barrels per day. We think that this is especially relevant as we have stated in the past that we believe Great Divide and JACOS’ Hangingstone, which has been in production since 1999 are comparable to Algar Lake and we feel their success bodes well for our project over time.

I would now like to hand the call back over to Jim.

Jim Palm

Thank you James. So, let’s wrap-up the operational end of our call. Gulfport’s exposure to the Bakken continues to build. We are participating in some incredible wells and are pleased that Windsor has begun drilling and operating our acreage in play. Grizzly continues to develop, providing the shareholder with significant upside potential and we are excited about new management coming on stand.

We are moving forward in developing the Permian area, an area that we believe will provide years of long-term, low-risk cash flow. In Southern Louisiana, with higher prices and more cash flow, we expect to drill 12 wells at West Cote. In Hackberry, we have drilled 5 wells, and based on data we receive after solid testing interval from our new wells, we will decide when to commit to another rig there.

Overall, confirmed production growth and development of upside opportunities are things that continue to deliver added value to our stockholders.

Finally, I would like to close with a comment about the valuation of Gulfport’s assets versus the current valuation of the company by the market. At year-end 2007, pricing of $92.50 for oil and $6.80 for natural gas, our engineering report showed a PV-10 of $821 million. Based on the increased price of oil and natural gas to yesterday’s close of $118.58 per barrel of oil and $8.69 per Mcf, we estimate our proved reserves alone to have a PV-10 of approximately $1.2 billion. Moreover, this number does not even begin to take into account the enormous upside we derived from Grizzly, the Bakken and other investments.

The success of our activity can be seen not only in the level of activity, but also in the increase in our production, EBITDA, and other financial measurements. We hope that the market will begin to recognize more fully what the present/future hold for Gulfport, and take advantage of the present buying opportunity that exists for our stock.

I thank you all for listening to our presentation. Once more we are pleased with the results of the second quarter of 2008 and we look forward to answering any questions you might have.

Paul Heuwagen

Operator, please go ahead and queue up the Q&A.

Question & Answer Session

Operator

(Operator instructions) And the first question comes from the line of Ron Mills from Johnson Rice. You may proceed.

Ron Mills – Johnson Rice

Good morning, everyone. A couple of questions actually, the start-up in Canada if you don’t mind -- Jim, can you say again when the Great Divide project started up prior to 2008, the initial production, so I can get a sense in terms of if Algar Lake is similar, when we could expect startup at Algar Lake?

James Rubin

The Great Divide project began steaming in September of 2007. It was declared commercial in March of 2008 and it’s shown as high as 9,000 barrels per day of production.

Ron Mills – Johnson Rice

Is that a shorter lead time from steam to reaching nameplate capacity or is that -- what should be expected?

James Rubin

It is what was shown by that project.

Ron Mills – Johnson Rice

Okay. And another one for you, any ideas – I know you all swapped engineering firms up in Canada, assuming that you all are having another resource evaluation done like you did last year. Should we expect something in terms of similar timeframe for an updated resource potential?

James Rubin

I think we need to put everything in the context of our new management. We are very excited about bringing our new management on and we are going to have to have them involved in all of that, including the resource (inaudible).

Ron Mills – Johnson Rice

From your comments, it sounds like that – that could be sooner than later.

James Rubin

In terms of bringing new management on?

Ron Mills – Johnson Rice

Correct. Yes?

James Rubin

Yes.

Ron Mills – Johnson Rice

Okay. And Mike, for you, from a production standpoint, you walked through the July average, the first six days here in August, what production has averaged. How would you recommend we look at that, either for the remainder of the quarter or the year, does that include a lot of flush production from some of the recent Permian wells and the one Hackberry well are, given the five rigs in the Permian plus three more Hackberry to hook up. Would you expect that trend to continue?

Mike Moore

Yes. The current production obviously is very strong. It does include 450 a day from the new Hackberry well. We still expect to exit the year at 1.9 million to 2.1 million. I think you are going to see consistent increases quarter-to-quarter, possibly a 15% increase in the third quarter or the second quarter and then another 20% increase in the fourth quarter in our production. But you will see a consistent ramp-up as we bring on the new Hackberry wells, Permian activity, and also the additional wells we drill on West Cote.

Ron Mills – Johnson Rice

Okay. In the Windsor, Jim, just one question in terms of the cost, you said it went up just a little but if everything is meeting the tight curve, are you still expecting those wells to have plus or minus 100,000 barrels of recoverability?

Jim Palm

Yes, I think the 100,000 you are referring to is an equivalent.

Ron Mills – Johnson Rice

Correct.

Jim Palm

Yes. We are real pleased with what we have seen and I think we are right on target there.

Ron Mills – Johnson Rice

And is the 100,000 to the (inaudible) Gulfport’s 50%?

Jim Palm

The 100,000 that I'm referring to is a 100,000 equivalent barrels to the 100% working interest.

Ron Mills – Johnson Rice

With the full $1.8 million cost?

Jim Palm

Correct.

Ron Mills – Johnson Rice

Okay, great. I appreciate the clarification. I will let someone else jump up.

Mike Moore

Thanks, Ron.

Operator

And the next question comes from the line of Neal Dingmann from Dahlman Rose. You may proceed.

Neal Dingmann -- Dahlman Rose

Morning, guys. Say Jim, with all your plays you mentioned I know you talked about you decided once, you know, see how some of these wells develop on the rigs. Will you lock in – I guess it is sort of a two-part question – will you lock – I know in the past you have locked rigs in for a fairly longer period, will you continue to do that, I'm just wondering what the environment looks now if you were to try to add a couple of rigs versus maybe six months ago?

Jim Palm

Well, Neal, in general, things like the markets get a little tighter all the time to have to get land rigs and barge rigs. We have got the longest [ph] drill in force now. We have got it contracted through the end of the year and maybe a little bit into the early part of next year, but it is a little bit different down in South Louisiana than some of the others that is on the water there. It has been a pretty good market today, but I think it is going to tighten up down there too. So you can see that we are expecting the cost to go up next year. And Jim you might want to add color on the rigs?

Jim Doherty

Rigs in the Permian, it is not so much a question of rig availability, it is rig quality, with crews and just trying to find high-performing crews down there. So we are continually high-grading the rigs that we have out there. We do have some under long term contracts, but we also have rigs that are not performing as well that we look at and see if we can turn them over and improve performance. In the Bakken, rigs are much tighter and we are looking at a number of things, one of them obviously is to tie a long-term contract. That is not the most preferred, but it is the safest in terms of supplying or getting our supply of rigs. So, we are trying to walk a balance between long-term commitments and the best price and best product.

Neal Dingmann -- Dahlman Rose

And one other question as far as I'm hearing more I guess chatter on tubulars becoming much tighter. Is that -- you are also seeing that as the case?

James Rubin

Yes, absolutely. We were fortunate enough that we recognized this problem earlier in the year and have secured our pipe needs through the remainder of this year and into part of 2009.

Neal Dingmann -- Dahlman Rose

Very nice. And then last question as far as – I know personnel is always a tough issue. How do you all sit now sort of staff-wise and going into next year?

Jim Palm

Well, for Gulfport, I would say we are in pretty good shape. We have got good geologic staff, we have got good technical staff down – both here in Oklahoma City and down in South Louisiana. So, I feel pretty good about it. It is a struggle though, we have to be competitive with some people like Devon and Chesapeake here, and so -- we are real competitive though and we think we got a great place to work at. Everybody I think enjoys working here. It is a lot more fun.

Neal Dingmann -- Dahlman Rose

Okay. And I think one last question as far as just on reserves overall as far as the way that they are sort of progressing now versus the prior year, does that still seem on schedule versus what your initial thoughts were at the beginning of this year?

Jim Palm

With regard what Neal?

Neal Dingmann -- Dahlman Rose

Just on a proved [ph] reserve basis, what you thought that – I know production guidance stays about the same. Just wondering if you were to look in the crystal ball towards year end, just looking on year-over-year reserves, it looks to me like they still may increase a bit. Does that seem to be the case?

Jim Palm

Well, it is really too early to tell now what the year end is going to bring for us, but all I can hope we are staying on individual well basis so far in areas, but can’t really tell what the whole package will be, but we like the wells we are making.

Neal Dingmann -- Dahlman Rose

All right. Thanks guys.

Operator

And the next question comes from the line of David Kistler from Simmons & Company. You may proceed.

David Kistler -- Simmons & Company

Good morning, guys. First, let me jump over to Hackberry. With the four wells that you guys drilled, I guess the third one you just gave us, one of those you just gave us. Can you walk me through whether those were on land or on the lake?

Jim Palm

All four were on the land.

David Kistler -- Simmons & Company

Okay, and then when can we expect to hear kind of rates out of the other three?

Jim Palm

We will – I don’t know when we will announce them, but we are currently completing the second and then we are going to take the rig right over to the third and the fourth. So certainly sometime between – certainly by the next call and I don’t know whether we will announce anything in the meantime or not.

David Kistler -- Simmons & Company

Okay. And then just thinking about in terms of going forward, how many permitted locations you guys have after those – well, excluding those four?

Jim Palm

Well, when we started drilling these four, we had 17 permitted locations, so we still have 13 permitted.

David Kistler -- Simmons & Company

Okay. And then jumping to the Bakken, just kind of you laid it out for us very nicely in the Permian, can you walk us through days to drill in the Bakken?

Jim Palm

Jim, you want to take that one?

Jim Doherty

What we are expecting for Bakken drilling is anywhere from a 30 day to a 45 day drill. I think what will happen is we will improve with time. We only had one well so we don’t really have a measure for where we have operated, but with the wells that we have participated in those Windsor and Gulfport, that range is for the type of where we are drilling, which is less than a 5,000 foot lateral. You are looking at a 30 to 45 day drill. And a lot of that depends on rigs and quality of personnel on the rigs.

David Kistler -- Simmons & Company

And that is drill to sales?

Jim Doherty

No that is the drill. The completion – one of the issues up in Bakken is going to be securing the supply or the service companies and getting in the queue on that, which we are working on right now. As we mentioned, we are fracing here in mid-August our first well and our hope, and our expectation is that we queue those guys up pretty good so that we don’t have a long lag time. Right now, frankly, I couldn’t tell you the exact time, but our expectation would be to try and get wells frac within two or three weeks or so, but when we complete the well and try to have a facility in place to have sales coming on just as soon as possible. And if you are talking spud to rig release, if I were giving you a rough estimate, I would say probably two and a half months for sales.

David Kistler -- Simmons & Company

Okay. And then, jumping over to the Permian, on the last call indicated that you thought that by year end, you would be somewhere between 1,700 and 2,000 barrels a day. Looking at where you guys were in July, is that still sound right? I'm just trying to triangulate what parts are going to be contributing to the kind of production increase you guys have laid out for us.

Jim Doherty

You know, due to the delay that we have had, the shift to the right a little bit on our drilling and production, it looks like that range is going to be more in the range of 1,200 to 1,400 a day at year end. Same results, just a shift to the right.

David Kistler -- Simmons & Company

Okay, so then the gap is definitely being picked up by what you guys are doing in South Louisiana and in the Bakken?

Jim Doherty

Right.

David Kistler -- Simmons & Company

Okay. And then last question, just talking about your valuation you closed the conference call with, I have been looking at free cash flow and obviously there is lots of interesting investment opportunities if Grizzly takes off, capital to be spent there et cetera, but if we are looking at something that would effectively be at 2x of where the stock trades right now, just on a PV-10 basis, would you be looking at just simply buying back shares?

Jim Palm

Well, we have looked at that, but we have got so many great opportunities and we are really in capital constraint to date, so given the places that we got plus some of the alternatives that we would like to take advantage of, we think our shareholders are better served by going ahead and continuing to invest in these areas. We have got some great acreage positions in some great places and we are trying to take advantage of them.

David Kistler -- Simmons & Company

All right. Well thanks guys, it was very helpful.

Jim Doherty

Thank you.

Operator

And the next question comes from the line of Gary Nuschler from Jeffries and Company. You may proceed.

Gary Nuschler -- Jefferies & Company

Thanks, good morning. Most of my questions have already been answered. First I want to clarify one thing. You mentioned that you are looking at 15% production growth in the third quarter, 20% in the fourth. Is that just for South Louisiana or is that for the total company?

Mike Moore

15% right?

Gary Nuschler -- Jefferies & Company

15% in the third quarter?

Mike Moore

Right. That is company-wide. That gave you guys an average, an idea of the average growth that we could expect to see in those quarters.

Gary Nuschler -- Jeffries and Company

Okay. And then, if many reserves over at Hackberry in the lake, you had a pretty large prospect, that probably doesn’t get (inaudible) this year, but peering into 2009, do you think that gets drilled sometime in the first half of 2009 or is that unlikely?

Jim Palm

Well, yes, we have a great deep gas prospect over there, I don’t know whether it will hit 2009 or the year after, but we are anxious to go drill that one of these days and certainly that is going to be drilled. We haven’t decided the timing yet.

Gary Nuschler -- Jeffries and Company

Okay. And in my last question, and I know it is a bit early perhaps, but could we get perhaps a preliminary estimate of what your CapEx allocation in the oil sands might be next year?

Jim Palm

You know currently we’re modeling, although we are not finished, approximately $20 million next year for our investment in Grizzly.

Gary Nuschler -- Jefferies & Company

I appreciate it. That’s all I had, thanks.

Operator

And the next question comes from Sven Del Pozzo from C.K. Cooper. You may proceed.

Sven Del Pozzo -- C.K. Cooper

Yes. How are you doing, gentlemen? I would like to know a little bit more about your core holes you have been drilling in Canada. Can you update us on what you found between the time of the last conference call and this conference call just to bring us up to date and still in Canada, could you give us an idea of how the bringing in new management might change the strategy up there with regard to unlocking the value of your large acreage position?

Jim Palm

I think the core hole drilling was really focused on two different things -- one, we continued to advance our Algar project through the delineation drilling and the seismic and the other is we conducted some exploratory activity at Silvertip where we had also drilled the prior winter and then as well as at Birchwood and Thickwood. We are pleased with what we saw at these areas and we also would say that it’s sort of western Athabasca region where all three of those properties are have saw significant offset drilling by other companies. So, I think that's what I would say on that. In terms of new management, I think we always felt that Grizzly’s assets would be best managed by a proven team with oil sands experience and we felt at this point where we are getting closer to our first project it would be the best time to bring in new team and start building up.

Sven Del Pozzo -- C.K. Cooper

And that will be in particular with regard to the Algar Lake project. And I guess I am wondering aside from the Algar lake project the actual acreage itself is there going to be any new strategy with regard to the acreage position, how that might be managed in terms of perhaps swapping acreage with other companies or just a kind of an open question in that regard, but in particular to the acreage, if you could help me understand that a little bit better?

Mike Moore

I think it would be best to defer that to once our new management team starts. That team will obviously voice their plan and explain exactly what they plan to do going forward. I am confident that they will bring value to our assets, significant value to our assets.

Sven Del Pozzo -- C.K. Cooper

Okay. Thank you very much.

Jim Palm

Thank you.

Operator

And we have a follow-up question from Ron Mills from Johnson Rice. You may proceed.

Ron Mills - Johnson Rice

Mike, did you say you have $84 million drawn on a $90 million bond base?

Mike Moore

That’s correct.

Ron Mills - Johnson Rice

And in terms of the second half outlook, you still expect your cash flows to fund your CapEx?

Mike Moore

We do. We think we have picked that right now. So, we are comfortable with -- that we are at with our cash flow and our availability.

Ron Mills - Johnson Rice

And you mentioned a preliminary number for Canada in terms of CapEx next year? I assume you would see a similar type increase in the Bakken given the level of activity increase up there with, kind of your South Louisiana and Permian expenditures stay relatively flat with this year based on activity levels. Is that a fair first cut?

Mike Moore

It probably is Ron, for your first cut, but just keep in mind that it’s preliminary and we’ve not finalized any plans in either area. But, yes, that’s probably a fair statement.

Ron Mills - Johnson Rice

Okay. Great thanks.

Mike Moore

Thank you.

Operator

And our next question comes from the line of Ross DeMont from Midwood Capital. You may proceed.

Ross DeMont -- Midwood Capital

Hi guys, great quarter. Congratulations on keeping production up when you didn’t have too many rigs down in Louisiana. So it’s great.

Mike Moore

Thanks Ross.

Ross DeMont -- Midwood Capital

Quick question and maybe for the gentlemen there representing Grizzly, are you guys still committed to doing a Grizzly financing this fall? And if you do do one, can you give us a feel for where your advisors are suggesting that valuation might shake out?

James Rubin

I think all previous timelines have to be put into context with the new team requiring time to ramp up their efforts, and I think that they will -- when they are on we will give more guidance on this.

Ross DeMont -- Midwood Capital

Okay, so from a Gulfport perspective, you guys are ready and willing to fund whatever CapEx requirements are necessary for a while if you don’t do a financing this fall?

James Rubin

Absolutely. We could find anything we need to.

Ross DeMont -- Midwood Capital

Great. That’s all I have. Thanks.

Operator

And that’s all the questions we have in the queue. I will pass the call over to Paul Heuwagen for closing remarks.

Paul Heuwagen

Thank you Operator. I believe this concludes this morning’s call. A replay of this call will be available temporarily through the company’s Web site and can be accessed at GulfportEnergy.com. Thank you for your time and interest in Gulfport Energy this morning. This concludes our call.

Operator

Thank you, ladies and gentlemen for you participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Gulfport Energy Corporation Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts