Gastar Earnings Report Points To Economics Behind Planned Appalachian Divestiture

November 27, 2015 Nemes Random

Hammered by Appalachian basis differentials, Gastar Exploration Inc. plans to continue focusing its capital on the Oklahoma liquids plays as it continues with plans to offer off its Marcellus and Utica acreage.

As were all aware, these are challenging times for our market. Gastar discovers itself opportunity and possession rich, yet capital-constrained, justsimilar to manya lot of our peers, CEO J. Russell Porter told investors throughout the companys 3rd quarter revenues call Friday. Thankfully, we have assembled assets in 2 basins that are core and highly important.

Offering assets that are as high quality and valuable as our Marcellus and Utica is not an easy choice, however we believe its the ideal decision offered our greater relative returns that we produced from our Midcontinent possessions.

Last month, Gastar announced its strategies to sell its Marcellus and Utica acreage, focused mainly in Marshall and Wetzel counties in West Virginia, while also moving forward on a $43.3 million acquisition of 103 gross producing wells and other undeveloped acreage in the STACK and Hunton Limestone plays in Oklahoma from its joint endeavor (JV) with Husky Ventures Inc. (see Shale Daily, Oct. 15).

Were anticipating quotes early next week, and it will take a little while to evaluate those and hopefully move towards a definitive contract with among the bidders, Porter said. Some time prior to completion of this year, we need to have some results that we can make public. If we decide not to offer, we can make that public, too.

CFO Michael Gerlich said the earnings from selling Gastars Appalachian possessions will go to decrease the quantity the company will borrow to fund the Midcontinent acquisition.

Gastars third quarter results inform the tale of the economics behind the prepared Appalachian divestiture.

The companys total natural gas production in the Marcellus for the quarter was up slightly year/year at simply under 2 Bcf, with an average sales costprices per system of 46 cents/Mcf, below $2.14/ Mcf for the year-ago period. The business produced 226,000 bbl of natural gas liquids (NGL) in 3Q2015 at a typical loss of $1.56/ bbl, compared with an average cost of $26.98/ bbl in 3Q2014.

Gastars Utica holdings fared likewise in terms of rates, with production climbing up year/year to 698 MMcf from 187 MMcf in 3Q2014, however at an average 3Q2015 sales rateprices of 57 cents/Mcf, below $1.44/ Mcf in the year-ago period.

Our Appalachian Basin gas revenues keep to be affected by substantial negative basis differential, Gerlich said, adding that Gastars average Appalachian basis differential for the quarter based upon first-of-the-month rates was minus $1.56, even worse than the $1.26 negative differential in 2Q2015.

Gastar reported a bottom line for the quarter of $188.2 million (minus $2.47/ share), driven by practically $182 million in problems on its oil and gas buildings. That compares with net earnings of $13.4 million (16 cents/share) in the year-ago duration.

Porter revealed optimism about the prospective returns from its Midcontinent holdings, noting promising, albeit early, results from its $5.8 million Meramec test well in Oklahoma. Porter said the business is hoping for 700 boe/d or more from the test well.

While its prematurely making any conclusive statements about efficiency, were highly motivated, Porter stated. The well was initially flowing back frack water naturally at very high rates, which was an excellent indication.

The business wasnt ready to divulge its capital budget plan for 2016 to financiers Friday, but Porter suggested Gastar would likely run a single-rig strategy in the Midcontinent for mostthe majority of the year, focusedconcentrated on returns more than production development.

Porter stated Gastars Midcontinent acreage, borderingverging on acreage held by Newfield Exploration Co., presents chances to take advantage of several plays, consisting of the Hunton, the Meramec, the Woodford Shale STACK play and the Oswego and Osage developments in Oklahoma.

Remained in a position where, without cataloguing the Osage and Oswego wells yet and with the Hunton, Woodford and Meramec, were quickly in 1,000 net areas, Porter stated. Its simply a truly huge opportunity set, and by holding this acreage, we secure a great deal of opportunities and, we believeour team believe, a tremendous amount of value moving forward.

For the quarter, Gastar reported overall Midcontinent production of 274,000 bbl of oil and condensate, 805 MMcf of natural gas and 111,000 bbl of NGLs, with an average sales priceprices of $29.80/ boe.


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