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Investor presses Gulfport to lower 2020 capex

Shah Capital also demands share repurchase and 'acceleration' of sale of water assets

Investment firm Shah Capital is pressing US natural gas producer Gulfport Energy to spend less next year than in 2019 as part of a pitch to return money to investors.

Shah Capital, which owns about 3 million shares of Gulfport amounting to a 1.9% stake, wants the company to cut its 2020 capital expenditures to $400 million. Gulfport plans to spend between $565 million and $600 million this year and has not yet released guidance for next year.

The company declined comment when contacted by Upstream for a response.

In a release issued Friday, Shah said it also wanted Gulfport to repurchase 30 million shares this month as part of a previously announced $400 million buyback plan and to "accelerate" the current process of selling the company's produced water assets in Oklahoma. The stock repurchase programme was announced in January of this year, hours after investment firm Firefly Value Partners, which owns 8.1% of the company, sent a letter to the board calling for a $500 million buyback scheme. The programme was authorised to take place over a two-year period following the announcement.

More recently, Gulfport hired a new chief financial officer.

"Shah Capital is fully aware of the headwinds facing natural gas producers including vicious cycle it has been in since 2016, however, our disappointment is rooted in our belief that management and board have not yet utilised some of the tools available to stop this massive equity underperformance, and begin to propel Gulfport towards a more virtuous cycle," Shah said.

Gulfport, which has core assets in the Utica shale of Ohio and the Scoop play of Oklahoma, saw its production rise 8% year-on-year in the second quarter of this year to 1.4 billion cubic feet equivalent per day. However, the outlook for natural gas producers in the US has taken a grim turn in recent months as commodity prices have dipped. In second-quarter earnings results, producers in the prolific Appalachian basin and Haynesville shale outlined plans to drop rigs or slow growth.

In its second-quarter earnings presentation, Gulfport said it expected spending to decrease in the third and fourth quarters of 2019 while generating "significant" free cash flow.

The demands from Shah Capital is the latest attempt by activists to pressure US exploration and production companies, whose share prices have languished in the commodity price downturn, to return cash to increasingly disillusioned investors. In July, shale gas giant EQT got a new chief executive and a majority of new board members following nearly a year-long proxy battle with members of the Rice family. In addition, Halcon Resources in April acquiesced to investor demands to replace several board members, though PDC Resources successfully fought off its own challenge.

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