One of the largest investors in Gulfport Energy Corp. is urging changes at the natural gas and oil company, saying its board lacks the experience needed to correct its lagging performance.
Firefly Value Partners, which said it and its affiliates own 8.1 percent of Gulfport, also wants the company to implement a $500 million share buyback program, according to a letter to the company’s board Thursday. It argues doing so could increase its share price by at least $9. The shares fell 2.5 percent to $8.68 at 12:45 p.m. in New York trading Thursday.
“We are concerned that the current board does not possess the necessary skills, experience, or alignment with the company’s stockholders to effectively steer Gulfport’s strategy and maximize long-term shareholder value,” Firefly said in the letter, which was reviewed by Bloomberg.
Firefly, which has never run an activist campaign, wants to work with the company on refreshing the board, said people familiar with the matter who asked not to be identified because it was private. The investment firm will consider nominating a slate of its own directors if that effort fails, the people said.
Oklahoma City-based Gulfport confirmed in a statement Thursday that it had received the letter, which it said followed dialogue with Firefly.
“Separately, the board of directors has a previously scheduled meeting today, after which Gulfport looks forward to providing further information to investors concerning the company’s plans for 2019,” Chief Executive Officer David Wood said in the statement.
Shares in Gulfport had fallen 32 percent in the past year through Wednesday, giving it a market value of about $1.5 billion. Firefly argues the company could be worth more than $30 share over time if it takes steps needed to improve its performance.
The share buyback could be funded from cash on hand, future cash flow and the sale of non-core assets, including its 22 percent stake in oilfield services company Mammoth Energy Services Inc., Firefly said.
A share buyback would be more accretive for shareholders than spending the funds on efforts such as accelerating drilling, Firefly argues.
Based on its dialogue with Gulfport Chairman David Houston, Firefly said it’s concerned that the board won’t commit to actions needed to improve value despite a strong cash position and being one of the lowest cost producers of natural gas in the U.S.
Gulfport has issued $2.9 billion in equity since 2013 — each time at a lower price — that has destroyed value for shareholders by diluting their holdings, according to Firefly. It urged the company to set a different course under Wood, who was appointed in December.
“Considering the value-destructive equity issuances of the past five years, we believe Gulfport should adopt a strict moratorium on further share issuances to send a clear message to investors that the company is on a new path,” Firefly said.
Gulfport holds acreage in Ohio, Oklahoma and the Louisiana Gulf Coast, according to its website.