Tuesday, February 12, 2013

Another day - another strange Gulfport Energy related party transaction

I woke up this morning to the news that Gulfport Energy (NASDAQ:GPOR) is buying another 22 thousand net acres in the Utica Shale from Windsor Ohio - an affiliate of Wexford Capital. The price is about $10 thousand an acre. This is funded by a large equity raise.

This is very similar to a transaction in December 2012 where 37 thousand acres were purchased from Windsor Ohio for $372 million. That was also funded by an equity raise. The 8K describing that transaction contained the following disclosure:
Mike Liddell, Gulfport’s Chairman of the Board, is the operating member of Windsor Ohio. All distributions made by Windsor Ohio are first paid to the Wexford members in accordance with their respective ownership interests in Windsor Ohio until they have received amounts equal to their respective capital contributions. Thereafter, distributions are made 90% to the Wexford members in accordance with their respective ownership interests and 10% to Mr. Liddell. Upon closing of the Acquisition, Mr. Liddell received approximately $2.9 million in distributions from Windsor Ohio corresponding to his 10% interest described above.
It is an open question as to how much money from this equity raise will find its way into Mr Liddell's pocket. The Gulfport Energy press releases do not broach this question.

However - on a cursory look - it appears that the Windsor Ohio members have already received back their capital contributions and on a literal reading of the above quoted 8K a full ten percent of the money paid for this acreage will flow personally to the Chairman of Gulfport Energy.

$22,000,000 is not a bad pay day. I know it is a guess - but hey - Gulfport do not disclose this detail in their press release. Nor is it disclosed in their prospectus for the offering. I telephoned Paul K. Heerwagen IV (the IR officer and contact on the press releases) and asked him the question directly. He hung up on me and did not answer return calls.

But dear Gulfport shareholders - you should have no discomfort: the press release assures us that "the transaction was approved by a special committee of Gulfport’s Board of Directors."


Disclosure: short Gulfport.


Sambo said...

Hi John,

Also short Gulfport. It has been a rollercoaster thus far.

How rude (and unsurprising) that he rung up on you. It is a hard one to get conviction on yet there is never just one cockroach in the kitchen - and the strange related party transactions are puzzling to say the least.



Bonzo said...

the entire wexford empire is like this: lots of furious trading of assets, constant restructurings and floatations -- makes balance sheets hard to read and cash almost practically impossible to keep track of; yet, all i have been able to find so far is one minor inconsistency when one 10Q explained a cash investment as going into x project mainly, and the subsequent 10Q as into another project

the utica shale property is probably going to be floated?

Bonzo said...


Do you understand the FANG transaction?

Bonzo said...

As far as I can tell, the FANG transaction consisted of floating a gas field owned by GPOR. GPOR trades at 3x book, FANG at 2x book, so assuming FANG can rise like GPOR did, it's "attractively priced". In the process the former sponsor of GPOR (a Wexford affiliate) reduced his shareholding in GPOR from something like 20% to something like 1% while picking up a 20%-ish holding in FANG. it's a nice insider transaction, of course, but also... a bailing out of GPOR by original sponsors?

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