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2nd activist puts pressure on Gulfport Energy to stem stock's slide

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2nd activist puts pressure on Gulfport Energy to stem stock's slide

A small North Carolina investment adviser is pressuring Gulfport Energy Corp. to cut spending and sell some assets to finance the quick buyback of 30 million shares, about $80 million at current prices.

"With no maturity of debt until Q2 2023 and an enterprise value of just around $2.6 billion, Gulfport's board of directors has a tremendous shareholder value creation opportunity if it takes an immediate courageous action," Shah Capital Management Inc. managing general partner Himanshu Shah said in a Sept. 6 letter to the board. Shah noted that Gulfport's stock has lost 95% of its value over the last five years and is trading at its lowest level since going public.

Shah said it holds a 2% stake in the shale gas driller.

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Shah wants Gulfport to cuts its 2020 capital spending to $400 million to generate $100 million in free cash flow, saying there is no room in the market for more gas and liquids and reduced drilling would send the signal that Gulfport was "a rational player considering current supply/demand imbalance with daily supply of 91 Bcf to demand of only 84 Bcf."

At the same time, Shah said, Gulfport should use a modified Dutch auction to buy back 30 million shares in September, while selling its Oklahoma water assets for over $100 million.

Gulfport is on its second CEO in less than a year and has not released any 2020 spending guidance. Analysts surveyed by S&P Global Market Intelligence anticipate that Gulfport will have capital expenditures of $573 million in 2020. The company declined to comment on Shah's letter.

The letter did not say what the fund would do if Gulfport did not act on its demands. Firefly Value Partners LP threatened a proxy fight at the start of the year if Gulfport did not cut spending and use the positive cash from operations and asset sales to fund a buyback. Firefly dropped that fight after Gulfport authorized a $400 million buyback that Shah now wants accelerated.

"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 [the] majority of industry peers including private operators have failed miserably," Shah's letter said.

Gulfport shares were off 4% in light trading to $2.65 per share by midafternoon Sept. 6. Once the largest natural gas producer in Ohio's Utica Shale, the company also drills for gas and liquids in Oklahoma's South Central Oklahoma Oil Province play.