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Thursday, May 1, 2014

Changes at Gulfport Energy Seen as Positive by Analysts

From New York-based analysts Sterne Agee:

GULFPORT ENERGY CORP. (NASDAQ: GPOR) Flash Note
RATING: BUY
Price: $73.30
Price Target: $87.00

Analysts: Tim Rezvan, CFA (212) 338-4736 / Truman Hobbs (212) 338-4767
As Expected, Interim CEO Michael Moore Named Full-Time CEO. Lack of Substantial Board Changes May Disappoint Investors.

Our Call
Gulfport announced interim Chief Executive Officer (CEO) Michael Moore became full-time CEO. Ohio COO Ross Kirtley was promoted to COO of the company and Moore and Michael Reddin were appointed to the Board. The additions are a welcome sign to investors, although adding only one seasoned director falls short of our (and investor) expectations of a larger overhaul. With that said, it is a positive step. We would buy GPOR shares on weakness related to disappointment on the minimal changes.

• Interim CEO Becomes Full-Time CEO; Ohio COO Gets Promotion. As expected, interim CEO Michael Moore was promoted to full-time CEO. In light of the company's improving operating performance, we believe this news should be received well. While some investors were looking for a strong, new hand to control the rudder of the company, we were of the view that the bigger issue was back-filling the VP-level field leadership running the Utica Shale development program. With recent hires of strong managers in 2013, including Robert Jones, VP of Drilling in Ohio, Ty Peck as Managing Director of Midstream, Mark Malone as VP of Operations for Ohio and Stuart Maier, VP of Geological/Geophysical, the company showed its commitment to building a seasoned bench. One of these hires was Ross Kirtley, who was the Chief Operating Officer (COO) of Ohio, but has since been promoted to COO of Gulfport.

• Moore and Michael Reddin named to the Board. Joining Moore on the Board is Michael Reddin, an independent Director with significant E&P experience with public and private companies. Mr. Reddin was a director at Berry Petroleum before its acquisition.

• Board Additions a Good First Step, But Market Was Equally as Focused on Subtractions. Gulfport lost an opportunity here to quell rumormongering about their weak Board, although the issue was generally known by investors and hasn't weighed on shares. After the resignation of CEO and Director James Palm, the Board consisted of four members: Chairman David Houston, who runs an insurance and estate planning company, Director Donald Dillingham, a portfolio manager, Director Craig Groeschel, a pastor, and Director Scott Streller, who runs an insurance and financial services company. Also involved in decision-making is Board consultant (and former Chairman) Michael Liddell, under contract into 2015. These additions increase the Board to seven (including Liddell), but we believe the Board needs to examine the role of legacy directors without relevant experience. We look forward to color on the Board during the company's 1Q earnings call.

• Expect Minor Sell-off - Buy the Dip. Distilling the news in the release, the Board is slightly stronger today than it was yesterday. The changes fall short of a full-fledged makeover, but are a positive step. Recent conversations with clients suggest that many did not think Moore would get the full-time role. As such, some may be disappointed that a "big ticket" hire from a larger independent E&P wasn't made. We would counter by saying execution and management depth have improved under CEO Moore's interim tenure, which should continue to drive multiple expansion.
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