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Firefly sets goals for Gulfport to avoid proxy fight

A New York-based hedge fund manager said Wednesday Gulfport Energy’s plan to repurchase $400 million of stock was just one of several steps the company must take to avoid a proxy fight over the Gulfport board’s composition.

In January, Oklahoma City-based Gulfport announced the stock repurchase program amid pressure from Firefly Value Partners LP, which manages funds that collectively own 8.1 percent of Gulfport’s common stock. On Wednesday, Firefly said more work must be done “to regain investor trust and set the company on a path to maximizing value for stockholders.”

Gulfport’s board, Firefly said, must take the following actions this year:

  • Implement the capital and operational plan announced in January, including the $40 million stock buyback plan.
  • Set short-term and long-term executive compensation incentives that better reflect the interests of all stockholders.
  • Abstain from equity issuances.

If the company fails to accomplish these three goals in 2019, the “board’s composition will need to change,” Firefly wrote in a letter to the Gulfport board.

Firefly said adding “meaningful stockholder representation” to the board of directors would be the most effective way to align the interests of the board and the company’s stockholders. But engaging in a distracting proxy fight would not be the best course of action at this time, Firefly said. Instead, it would be better for stockholders to give Gulfport’s new chief executive, David Wood, enough time to deal with the issues related to Gulfport’s underperformance, Firefly wrote.

Wood was named CEO in December after the board discovered former CEO and President Michael Moore used the company’s chartered aircraft but never properly identified or disclosed that information, according to papers filed with the U.S. Securities and Exchange Commission.

“Gulfport has made several capital allocation missteps, including issuing large amounts of equity five times since 2013, each time at successively lower prices,” Firefly wrote.

Last week, Gulfport reported a slight decrease in 2018 earnings, with net income of $430.6 million, down from $435.2 million in 2017. Revenue for 2018 was $1.36 billion, up from $1.32 billion in 2017. Natural gas sales accounted for $1.1 billion of the company’s 2018 revenue.

For 2019, Gulfport estimates total capital expenditures will be in the range of $565 million to $600 million, which will be funded entirely within cash flow at current pricing. The 2019 capital budget includes $525 million to $550 million for drilling and completion activities and $40 million to $50 million for land activities.

“With the challenging near-term outlook for North American natural gas and the market increasingly focused on shareholder returns and cash flow generation, we feel that prudent capital spending and disciplined capital allocation are distinguishing features in our business,” Wood said last week.

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