UPDATE - Shah Capital Asks Gulfport to Reduce 2020 Capex by Over 25%
September 06 2019 - 2:30PM
September 6, 2019
Gulfport Energy Corporation3001 Quail Springs Pkwy.
Oklahoma City, Oklahoma 73134
To Gulfport Board of Directors,
Shah Capital owns around 3 million shares or 1.9% stake, and
since our founding in 2005 has focused on deep, fundamental
analysis to uncover investment opportunities globally. The
investment team has a long history of being strategic with an
intermediate to long-term investment timeline.
Trading at the lowest valuation metrics since being public,
Gulfport Energy (NASDAQ: GPOR) shares are down over 95%
since September of 2014 compared to S&P being up over
47% despite the strength of GPOR’s asset portfolio with a
cumulative Capex of $4.7 billion since 1/1/16. With no maturity of
debt until Q2 2023 and an enterprise value of just around $2.6
billion, Gulfport’s BOD has a tremendous shareholder value creation
opportunity if it takes an immediate courageous action following
through on the following suggestions:
- Immediately announce Gulfport is reducing its 2020
Capital Spending to $400 million from around $550 million.
Our preliminary analysis shows GPOR can still generate in 2020 over
$100 million free cash flow at prevailing 2020 strip prices of
around $2.4 with an assumption that its 2020 production declines by
around 5% with $400 million capital spending. This sensible Capex
plan sends another signal as Gulfport being a rational player
considering current supply/demand imbalance with daily supply of
91bcf to demand of only 84bcf. Ironically, US supply was less than
70bcf just 3 years ago, and 55bcf 10 years ago
- Repurchase 30 million shares either in an accelerated
fashion or in a modified Dutch style in September 2019 as part of
your $400 million buyback plan announced in Q1
2019
- Accelerate sale of Oklahoma water assets as our analysis
indicates this asset could net over $110 million
Shah Capital is fully aware of the headwinds facing natural gas
producers including vicious cycle it has been in since 2016,
however, our disappointment is rooted in our belief that management
and board have not yet utilized some of the tools available to stop
this massive equity underperformance, and begin to propel Gulfport
towards a more virtuous cycle.
We strongly encourage a greater sense of urgency in the
implementation of our above recommendations. Frankly, we challenge
the new management team to lead Gulfport in a way that sets an
example for the entire E&P industry in terms of further
capital discipline and production cutbacks where majority
of industry peers including private operators have failed
miserably. Though capital efficiency is very important, the E&P
industry must also act rational in reducing future dry/wet gas
production meaningfully to earn respectable return on invested
capital and equity.
The cash generating strength of Gulfport’s Utica assets combined
with NGL rich and cost friendly SCOOP acreage, not to mention
significant ability to unlock value from quality non-core assets
gives us confidence that Gulfport’s underlying strengths have been
buried and forgotten by years of past missteps, misappropriations,
and lack of agility. Gulfport’s new management team has an
extremely unique opportunity to lead to relevance and establish
themselves as a role model. In doing so, you will earn the respect
of the investment community.
Sincerely,
Himanshu H. Shah Managing General Partner and Chief Investment
Officer
About Shah Capital
Shah Capital is a global investment firm focusing primarily on
deep value, turn-around, and special situations. The firm launched
its flagship investment vehicle, Shah Capital Opportunity Fund, in
2006, which incorporated its philosophy of spotting trends early,
acting with speed, and maintaining strict discipline, all built on
a foundation of deep fundamental research.
Important Disclosures
Any views expressed in the letter represent the opinion of Shah
Capital, whose analysis is based solely on publicly available
information including Shah Capital research and official Company
records. No representation or warranty, express or implied, is made
as to the accuracy or completeness of any information contained
therein. Shah Capital expressly disclaims any and all liability
based, in whole or in part, on such information, any errors therein
or omissions therefrom. Shah Capital also reserves the right to
modify or change its views or conclusions at any time in the future
without notice. The information contained in the letter does not
recommend the purchase or sale of any security nor is it an offer
to sell or a solicitation of an offer to buy any security.
Furthermore, the information contained in the letter is not
intended to be, nor should it be construed or used as, investment,
tax or legal advice. No representation or warranty is made that
Shah Capital’s investment process or investment objectives will or
are likely to be achieved or successful or that the Shah Capital’s
investments will make any profit or will not sustain losses. Past
performance is not indicative of future results. Nothing contained
in the letter should be taken as any form of commitment on the part
of Shah to take any action in connection with any particular
security. Shah Capital is in the business of buying and selling
securities. We have, and may in the future, buy, sell or change the
form of their position in any security for any or no reason
whatsoever.
MEDIA CONTACT:
SHAH CAPITAL
919.719.6360
info@shahcapital.com
Gulfport Energy (NASDAQ:GPOR)
Historical Stock Chart
From Mar 2024 to Apr 2024
Gulfport Energy (NASDAQ:GPOR)
Historical Stock Chart
From Apr 2023 to Apr 2024