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Three Reasons to Sell Gulfport Energy Corporation (GPOR)

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Recently, I took a look at three reasons to buy shares of Gulfport Energy Corporation (NASDAQ:GPOR). Most of the company’s production is oil which has provided it with a great balance sheet which will help the company develop its many potential production growth opportunities. Unfortunately, there are no perfect investments, which is why it’s important to consider what would make Gulfport a sell.

Gulfport Energy Corporation (NASDAQ:GPOR)

Relationship with Wexford Capital LLC

Gulport has a very close relationship with hedge fund and private equity manager Wexford Capital. The relationship is so close that the two have partnered on nearly every transaction Gulfport Energy Corporation (NASDAQ:GPOR) has closed in recent years. Typically, Wexford Capital LLC is the seller of a partial stake of an asset which Gulfport is purchasing. So far, the relationship has been very beneficial for Gulfport, and it’s helped to fuel the company’s growth.

What is of concern is that Wexford has steadily been reducing its ownership interest in Gulfport Energy Corporation (NASDAQ:GPOR). In December 2011, Wexford Capital LLC owned 13.3% of Gulfport’s outstanding shares, yet, as of last September Wexford owned less than 1% of Gulfport Energy Corporation (NASDAQ:GPOR). So, while the interests might be aligned, the alignment has shifted over the years. This is one area investors need to watch very closely.

Utica just isn’t oily
In its most recent investor presentation Gulfport Energy Corporation (NASDAQ:GPOR) called the Utica “one of the most promising up-and-coming oil-levered plays in North America.” However, the Utica isn’t turning out to be the top-tier oil-levered play that many top producers had hoped. Instead, the Utica is very gassy which has caused both Chesapeake Energy Corporation (NYSE:CHK) and Devon Energy Corp (NYSE:DVN) to scale back on the play. Devon Energy Corp (NYSE:DVN) is currently looking to completely exit the play while Chesapeake Energy Corporation (NYSE:CHK) is paring back its position.

What has become pretty clear is that the Utica isn’t the “biggest thing to hit the state since the plow” nor will it develop into a $500 billion powerhouse that former Chesapeake Energy Corporation (NYSE:CHK) CEO Aubrey McClendon predicted. That’s pretty evident when considering that Devon Energy Corp (NYSE:DVN)’s five wells produced no natural gas and only one well produced a small amount of oil. That being said, one of Gulfport’s top wells, the Boy Scout 1H, did produce 37,235 barrels of oil along with 122 million cubic feet of natural gas in its first 32 days. Gulfport might have found the sweet spot, but it would appear to be a very small spot leaving little margin for error.

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