S&P Upgrades Gulfport Energy (GPOR) to 'B+'; Notes Ability to Meet Public Guidance

Standard & Poor's Ratings Services raised its corporate credit rating on Gulfport Energy (Nasdaq: GPOR) to 'B+' from 'B'. The outlook is stable.

At the same time, we raised the issue-level ratings on the company's senior unsecured debt to 'B+' from 'B'. The recovery rating remains '4', indicating our expectation of average (30% to 50%) recovery in the event of default. Our recovery expectations are in the lower half of the 30% to 50% range.

"The upgrade on Gulfport Energy reflects our assessment of the company's production growth in the Utica shale and the company's improved ability over the past several quarters to meet its public operating guidance," said Standard & Poor's credit analyst Stephen Scovotti.

While Gulfport fell short of public production forecasts in 2013 and the first half of 2014, the company has been meeting its public guidance recently. We now assess the company's management and governance as "fair."

The ratings on Gulfport reflect our view of its geographic concentration in the Utica shale, as well as its aggressive capital spending over the past few years, which we expect to continue at more moderate levels. The ratings also reflect our view of the volatility and capital-intensive nature of the oil and gas E&P industry. These weaknesses are partially buffered by its significant growth potential in the Utica shale and the company's willingness to fund capital spending and acquisitions with equity issuance. We characterize Gulfport's business risk as "vulnerable," its financial risk as "significant," and its liquidity as "adequate."

The stable outlook reflects our expectation that the company will continue to increase production in the Utica shale, while maintaining FFO to debt of close to 30% in 2015. In 2016, we expect credit measures to improve compared with 2015 levels.

We could lower the rating if FFO to debt fell below 20% on a sustained basis or if we viewed liquidity as "less than adequate." We believe this could occur if production is less than our expectation for several quarters of if the company makes a debt-funded acquisition.

We could consider an upgrade due to an improvement in the company's business profile, while maintaining FFO/debt of greater than 20%. This could occur if the company continues to increase production and reserves in the Utica shale, while funding acquisitions and capital spending in a conservative manner.

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