Gulfport Unloose Energy Too Wexford Capital: Business Office 3

Part 1 as well as Part 2 - is intertwined alongside Connecticut based hedge fund grouping Wexford Capital. All their substantial assets are either jointly owned or operated or both past times Wexford entities. The Chairman of the board of Gulfport is - at to the lowest degree inwards role - a Wexford man.

However Wexford cause got over the past times few years dramatically reduced their asset inwards Gulfport. In the 30 Apr 2009 proxy Charles E Davidson (the principal of Wexford) spoke for 15,235,786 shares or but over 35 per centum of the company.

After years of sustained selling past times Wexford as well as sustained issuance past times Gulfport, Wexford's ownership seat is almost 2 thirds lower.

Despite Wexford's reduced asset Gulfport remains tied to Wexford.

Wexford as well as Gulfport are soundless doing related political party transactions. On seven May (ie this month) they announced a transaction whereby they are selling their Permian assets inwards telephone commutation for a stake inwards a soon-to-be-listed entity called Diamond Back.

There was no specific press unloose for this transaction - but it was announced via a long 8K. On May viii they announced their quarterly results which briefly described this transaction. To quote the net release:

As previously announced, on May 7, 2012, Gulfport entered into a contribution understanding alongside Diamondback Energy, Inc. ("Diamondback Energy"), inwards which Gulfport agreed to contribute, prior to the closing of Diamondback Energy's initial world offering, all of Gulfport's petroleum as well as natural gas interests inwards the Permian Basin inwards telephone commutation for (i) mutual stock representing 35% of Diamondback Energy's outstanding mutual stock at nowadays prior to the closing of its initial world offering as well as (ii) around $63.6 i grand m to hold upwardly paid to Gulfport upon closing of such offering, plain of study to adjustment. Gulfport's obligation to consummate the proposed contribution is plain of study to diverse closing conditions, including Gulfport's satisfaction alongside the price of the Diamondback offering.

The net unloose notwithstanding does non include the observation that this is a related political party transaction. You had to become to the 8K for that. Here is what the 8K says:

On May 7, 2012, Gulfport Energy Corporation (“Gulfport”) entered into a Contribution Agreement (the “Contribution Agreement”) alongside Diamondback Energy, Inc. (“Diamondback”). Diamondback was incorporated on Dec 30, 2011 for purposes of project an initial world offering (“Diamondback IPO”) of its mutual stock, par value $0.01 per part (the “Common Stock”), pursuant to a Registration Statement on Form S-1 (Registration No. 333-179502) initially filed alongside the Securities as well as Exchange Commission on Feb 13, 2012. Diamondback has non conducted as well as volition non behavior whatever textile operations prior to the transactions described below. Prior to the completion of the Diamondback IPO, Diamondback volition instruct all the outstanding equity interests inwards Windsor Permian LLC (“Windsor Permian”), which every bit of March 31, 2012, owned as well as operated around 30,025 cyberspace acres of petroleum as well as gas interests inwards the Permian Basin inwards West Texas. 

Under the price of the Contribution Agreement, Gulfport agreed to contribute to Diamondback, prior to the closing of the Diamondback IPO, all of its petroleum as well as gas interests inwards the Permian Basin inwards telephone commutation for (i) shares of Common Stock representing 35% of Diamondback’s outstanding Common Stock at nowadays prior to the closing of the Diamondback IPO as well as (ii) $63,590,050.00 inwards the shape of a non-interest bearing promissory note, which volition hold upwardly repaid inwards total upon the closing of the Diamondback IPO alongside a portion of the cyberspace proceeds from that offering. The aggregate consideration payable to Gulfport is plain of study to a post-closing cash adjustment based on changes inwards Windsor Permian’s working capital, long-term debt as well as other items referred to inwards the Contribution Agreement every bit of the engagement of the contribution. Windsor Permian is the operator of the acreage to hold upwardly contributed past times Gulfport. Gulfport’s obligation to brand this contribution is contingent upon, amid other things, the contribution to Diamondback of all the outstanding equity interests inwards Windsor Permian past times DB Energy Holdings LLC (“DB Holdings”), Gulfport’s satisfaction alongside the price of the Diamondback IPO as well as customary closing conditions. Under the contribution agreement, Gulfport is by as well as large responsible for all liabilities as well as obligations alongside honor to the contributed properties arising prior to the contribution as well as Diamondback is responsible for such liabilities as well as obligations arising afterwards the contribution. 

In connective alongside the contribution, Gulfport as well as Diamondback volition come inwards into an Investor Rights Agreement inwards which Gulfport volition cause got the right, for as well as therefore long every bit Gulfport beneficially owns to a greater extent than than 10% of Diamondback’s outstanding Common Stock, to designate i private every bit a nominee to serve on Diamondback’s board of directors. Such nominee, if elected to Diamondback’s board, volition likewise serve on each commission of the board as well as therefore long every bit he or she satisfies the independence as well as other requirements for service on the applicable commission of the board. So long every bit Gulfport has the correct to designate a nominee to Diamondback’s board as well as at that spot is no Gulfport nominee genuinely serving every bit a Diamondback director, Gulfport shall cause got the correct to appoint i private every bit an advisor to the board who shall hold upwardly entitled to attend board as well as commission meetings. Gulfport volition likewise hold upwardly entitled to for certain information rights as well as Diamondback volition grant Gulfport for certain need as well as “piggyback” registration rights obligating Diamondback to register alongside the SEC whatever shares of Common Stock owned past times Gulfport. 

The preceding descriptions of the Contribution Agreement as well as the Investor Rights Agreement are qualified inwards their entirety past times reference to the total text of such agreements, copies of which are attached every bit Exhibits 10.1 as well as 10.2, respectively, to this Current Report on Form 8-K as well as are incorporated herein past times reference. 

Diamondback, Windsor Permian as well as DB Holdings are entities controlled past times Wexford Capital LP (“Wexford”). Charles E. Davidson, the Chairman as well as Chief Investment Officer of Wexford, beneficially owned around 9.5% of Gulfport’s outstanding mutual stock every bit of March 13, 2012. Mike Liddell, Gulfport’s Chairman of the Board as well as a managing director of Gulfport, currently serves every bit the operating fellow member as well as chairman of Windsor Permian as well as has an involvement inwards DB Holdings. Influenza A virus subtype H5N1 particular commission of the Board of Directors consisting only of independent directors negotiated as well as approved this transaction on behalf of Gulfport.

The related political party nature of this transaction requires (and is existence granted) a commission of the independent directors.


How of import are the Permian assets?

The concluding annual study (10K) contained a tabular array alongside Gulfport's proved reserves past times field:

																													Proved Reserves
Field		NRI/WI (1)				Productive Wells (2)								Non-Productive Wells								Developed Acreage (3)								Gas				Oil				Total
		Percentages				Gross				Net				Gross				Net				Gross				Net				MBOE				MBOE				MBOE
West Cote Blanche Bay Field (4)			80.108/100				95				95				189				189				5,668				5,668				352				3,617				3,969
E. Hackberry Field (5)			79.424/100				30				30				93				93				3,291				3,291				226				1,606				1,832
W. Hackberry Field			87.5/100				2				2				23				23				592				592				—				76				76
Permian Basin			35.4/46.87				121				57				—				—				8,880				4,119				2,008				10,877				12,885
Niobrara Formation			39.7/47.9				6				3				2				1				3,954				1,977				26				500				526
Williston Basin (6)			2.8/3.3				6				.2				—				—				1,708				132				7				67				74
Overrides/Royalty Non-operated			Various				133				.2				—				—				—				—				3				2				5
Total							393				187.4				307				306				24,093				15,779				2,622				16,745				19,367

12.9 i grand m of the 19.4 i grand m barrels of petroleum equivalent inwards the proved reserves is inwards the Permian Basin. On this tabular array Gulfport has sold the volume of its proved reserves to a related party.

In their defense - afterwards the transaction they ain 35 per centum of the related political party which is lower but non massively lower than their prior ownership of the field. All that has happened is that they cause got lost command of the assets which they direct owned as well as are at nowadays owned past times a Wexford entity. In this I presume the Wexford interests inwards those assets were likewise contributed as well as on similar terms. [I produce non know - I am but giving Wexford the produce goodness of my doubt...]

Whatever: losing command agency that they likewise lose command of the cash flows from these assets. Moreover every bit they ain less than lxxx per centum of the assets if they instruct these cash flows out at that spot volition hold upwardly a taxation event. The 8K quoted inwards a higher house envisages a sell-down of the assets. This transaction does non brand feel from a taxation perspective unless that sell-down happens. So I presume a sell-down is expected.

As a shareholder it seems you lot are swapping productive assets you lot know for some cash which volition (presumably) hold upwardly used to educate other assets. Some of that cash only arrives when the IPO of Diamondback happens. There is goose egg manifestly incorrect alongside that - but the related-party nature of the transaction does enhance governance risks which brand shareholders subject on the non-executive directors to guard their interests.

John