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Hedge fund goes public with demand that shale producer Gulfport expand buybacks

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Hedge fund goes public with demand that shale producer Gulfport expand buybacks

Disappointed with what it termed a "lack of urgency" by Gulfport Energy Corp. to address low stock prices, a hedge fund went public with its demands, hinting that a proxy fight to replace the board might be its next action.

Gulfport's shares have lost 84% of their value in the past five years, and Firefly Value Partners LP, which said its funds own an 8.1% stake in Gulfport and have owned shares the whole time, cast doubt that the company's board of directors has the skill and talent to stop the slide.

Firefly said in a public letter to the company's board that Gulfport could juice the company's share price by $9 if it buys back $500 million worth of equity in the next year. Gulfport shares closed at $8.90 on Jan. 16.

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"We have been discouraged by the board's lack of urgency in addressing the company's prolonged stock price underperformance and its unwillingness to commit to actions that we believe would maximize value for stockholder," Firefly said in its letter to the board.

The hedge fund said it talked privately with the board in December 2018 and failed to get any action. "At this point, 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.

Firefly said it made its complaints public to encourage other large investors to join it in pressuring Gulfport to take action. While letter contained no specific threats of what Firefly will do if its demands are not met, Firefly's news release directed investors to contact a consulting firm that specializes in organizing proxy campaigns for company control. If Firefly decides to move in that direction, it would be the hedge fund's first proxy battle, according to S&P Global Market Intelligence's database.

New Gulfport CEO David Wood said he has spoken with Firefly but was noncommittal. "I have received Firefly's letter this morning, which followed dialogue we have had since my appointment to Gulfport last month regarding our mutual interest in enhancing and delivering value to all Gulfport shareholders," Wood said in a statement. " 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."

Firefly claimed that a share buyback and a declared moratorium on issuance of new shares is a better use of the company's free cash than any acceleration of drilling efforts in Ohio's Utica Shale or Oklahoma's SCOOP play. Gulfport recently hired a new CEO with significant experience in the Marcellus and Utica shales after spending most of 2018 shifting its efforts away from the Utica Shale and using the cash generated from its Ohio wells to finance expanded drilling in the liquids-rich SCOOP.

The hedge fund said Gulfport, which has bought back $110 million of its own shares under an existing $200 million buyback plan, has enough cash on hand, positive cash flow and noncore assets that it could sell to finance a $500 million buyback, which would roughly double the shares' current value.