Thursday, May 24, 2012

Gulfport Energy and Wexford Capital (Part VI): The independent directors

As the previous posts have shown Gulfport Energy and Wexford Capital are related parties on many levels. All the major projects of Gulfport are essentially joint operations with Wexford or will be after proposed transactions.

Wexford holds this privileged position despite having sold down most of its shares.

On major transactions though (such as the sale of the bulk of the proven oil reserves to a Wexford entity) you find statements that are reassuring. This was - for their latest major related party transaction - the form of words:
A special committee of the Board of Directors consisting solely of independent directors negotiated and approved this transaction on behalf of Gulfport.
With all these related party transactions an independent director of Gulfport would really have their work cut out. The Chairman of Gulfport is - as shown - in many respects a Wexford man. Most the operations are on a day-to-day basis run by Wexford controlled entities. Gulfport has issued hundreds of millions of dollars in shares and invested the vast bulk of this money in Wexford controlled entities. Being an "independent director" of Gulfport would have to rank as one of the most involved directorships in corporate America.

So who are the independent directors. Lets crib this from Gulfport's website except that I am going to do it in reverse order because the directors start more colourful that way:

Craig Groeschel: Director
Mr. Groeschel has served as a director of our company since August 2011. Since 1996, Mr. Groeschel has served as a founding pastor of, one of the largest churches in the United States, reaching over 30,000 people each weekend. Since founding LifeChurch, Mr. Groeschel has served on its Board of Directors. Under Mr. Groeschel’s leadership, LifeChurch has grown to 15 locations in the United States. Mr. Groeschel received a Bachelors in Business Marketing from the Oklahoma City University and a Masters of Divinity from the Phillips Graduate Seminary. Mr. Groeschel is a frequent speaker at various domestic and international forums and an author of a number of books.

Craig Groeschel is a very high profile pastor - running a church reaching over 30 thousand people each weekend. He hangs around with Brian Houston from the Hillsong Church in my home town (Sydney Australia). Hillsong was founded by (now deceased) paedophile priest Frank Houston. Frank was sacked by his Brian who now runs the show. [OK - I am a self-described godless liberal from Sydney. I have learned to loathe Hillsong and all that it stands for. My intense dislike of Hillsong might colour my judgement...]

Whatever: Craig Groeschel's church is nowhere near as controversial as Hillsong but it is easier to find tithing demands than charitable works on the internet. Here is one:

There are suggestions on the web that Craig Groeschel is one of the most financially successful pastors in the world however the church has stated that Pastor Groeschel does not even have access to the church check book.

As a godless liberal I will leave the estimate of spiritual success to other people.

It is also easy enough to find Craig promoting financial advisers who seem to get 12 percent annually from mutual funds without telling you which funds they are picking.

Independence is an issue with Pastor Groeschel. In a 2007 prospectus (withdrawn) for Diamond Back Energy Services Pastor Groeschel agreed to be a director. Do I need to say that Gulfport was a Wexford entity?

This Pastor is an independent director of Gulfport who negotiated a sale of the majority of Gulfport's oil reserves to a Wexford controlled entity called Diamondback. He was once slated as a director of a Wexford controlled entity called Diamondback.

Still he is independent now...

The next director is Donald L. Dillingham. Here is his CV cribbed from the website.

Mr. Dillingham has served as a director of our company since November 2007.  Since August 2001, Mr. Dillingham has served as the Senior Portfolio Manager for Avondale Investments, LLC and Merit Advisors, Inc., each of which is a registered investment advisor. Mr. Dillingham is currently the Senior Portfolio Manager for two mutual funds, a member of the investment committee of Merit Advisors, Inc. and the Vice-President/Treasurer of the Merit Advisors Investment Trust.  From August 2002 to December 2004, Mr. Dillingham served as an adjunct professor of finance at the University of Oklahoma.  Mr. Dillingham has also served as Senior Vice President, portfolio manager and state director for J.P. Morgan Investment Management, State Director responsible for managing the financial planning services and product sales for the State of Oklahoma for American Express, and Vice-President of Investment Banking for Bank of America.  Mr. Dillingham began his career in the finance industry with Stifel, Nicolaus as a fixed income analyst, risked based market maker and sales manager from August 1984 to May 1994.  Mr. Dillingham received a Bachelors of Business and Administration in Accounting from the University of Oklahoma and his Masters of Business and Administration in Finance from Oklahoma City University.  Mr. Dillingham is a Chartered Financial Analyst, a Certified Public Accountant and a Certified Financial Planner.  Mr. Dillingham is considered an independent director.

I have not checked the veracity of this CV however there are a few things missing. Donald Dillingham is also a director of The Beard Company. This now trades on the pink sheets under the ticker BRCO. The Beard Company had quite good looking assets and "proven" oil reserves but still managed to run out of cash. It never went bust though - it just went quiet. It no longer files with the SEC.

He has also been involved in a tax case with some controversy. The website (with his CV) for what he appears to be his main business is here.

The next director is Scott E. Streller. Here is his CV.

Mr. Streller has served as a director of the company since August 2006. Mr. Streller is the principal and founder of Streller Insurance and Financial Services with the Farmers Insurance Group of companies. Mr. Streller’s agency is consistently recognized as one the top agencies in the nation and is a member of the elite President’s Council. Mr. Streller is a frequent guest lecturer to Oklahoma City based universities and high schools on the topics of finance, risk management and budgeting. Mr. Streller is a member of numerous non-profit boards and recently served as the operations director for the 2006 Senior PGA Championship. Mr. Streller received a bachelor’s degree in business administration from the University of Central Oklahoma and a master’s degree in athletic administration from Oklahoma State University. Mr. Streller is considered an independent director.

A tied insurance agent does not strike me as the obvious choice for such a difficult independent directorship. Whatever my problem is not with him being an insurance agent. It is with the assertion that Mr Streller is an "independent director". Gulfport discloses otherwise in the 2007 proxy. To quote:

Effective September 29, 2006, we entered into an administrative services agreement with Diamondback Energy Services LLC, which we refer to as Diamondback. Under the agreement, our services for Diamondback include accounting, human resources, legal and technical support. The services provided to Diamondback and the fees for such services can be amended by mutual agreement of the parties. The administrative services agreement has a three-year term, and upon expiration of that term the agreement will continue on a month-to-month basis until cancelled by either party with at least 30 days prior written notice. The administrative services agreement is terminable (1) by Diamondback at any time with at least 30 days prior written notice to us and (2) by either party if the other party is in material breach and such breach has not been cured within 30 days of receipt of written notice of such breach. We were reimbursed approximately $823,000 for services provided under this agreement during the year ended December 31, 2006. Our Chairman of the Board, Mike Liddell, is also the Chairman of the Board of Diamondback. One of our directors, Scott Streller, is also a director nominee of Diamondback. In addition, Wexford Capital LLC indirectly controls Diamondback.
I thought the Good Pastor was compromised having once agreed to be a director of Diamondback. But this is kind of special. Scott Streller is an independent director for the purposes of selling the Permian assets (that is the bulk of the proved oil reserves) to a Wexford controlled entity called Diamondback.

But in 2006-2007 he was director of a Wexford backed entity called Diamondback. The Pastor only agreed to be a director of the Diamondback entity.

The last independent director is David L. Houston. Here is his CV:
Mr. Houston has served as a director of the company since July 1998. Since 1991, Mr. Houston has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Mr. Houston has served as a director of Bronco Drilling Company since May 2005. Mr. Houston was President and Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank. Mr. Houston currently serves on the board of directors and executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston received a Bachelor of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University.  Mr. Houston is considered an independent director.

Mr Houston is a director of Bronco Drilling. Mr Liddell, the Chairman of the board of Gulfport (and a Wexford man) is also the Chairman of the board of Bronco. Oh, and Wexford controls Bronco. Again the issue of independence matters.

So there they are. The four independent directors of a company laced with related party transactions - possibly the four independent directors with the hardest job (assessing all those transactions) of any oil and gas company I know.

Still - and I should repeat this - the company has set up a "special committee of the Board of Directors consisting solely of independent directors" to negotiate and approve the major transactions on behalf of Gulfport. And that is good practice.



Anonymous said...

How do you not have more AUM? You are really good at this. These directors are just amazing. Love the blog.

Anonymous said...


How do you typically hear about these shady companies? You have to get tips from somewhere that cause you to investigate further...

Anonymous said...

There is just no way to argue with this. It is a really impressive case.

I am also a godless liberal and was trying to decide who was more persuasive to me, Groeschel or the ShamWow guy. I think Groeschel because even when discounting the bible verses, he gets points for talking about selfishness and utility, and also for animating the concept of slicing the pie, which somehow makes the prospect of giving away 10% of your annual income seem trivial. Also the background music.

buboe said...

in paragraph about Diamondback Energy, I think you meant to say that Diamondback was a Wexford Entity, not Gulfport.

Chris said...

John, I always look forward to reading your posts when they hit my email inbox.

They're a great source of entertainment on so many levels... which is just as well since I'm not the least bit interested in investing in equities!

John Hempton said...

"How do you typically hear about these shady companies? You have to get tips from somewhere that cause you to investigate further..."


I found this one all by myself. But the trick - well - that is mine.


But What do I Know? said...

"Mr. Houston is . . .former chair of the Oklahoma State Ethics Commission. . ."

Good to know :>)

Anonymous said...

When do we get to the part in which selling the bulk of your reserves at USD 7.60/BOE is likened to buying Facebook shares at their IPO price, or worse...?

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