Gastar Exploration (GST) to Sell Certain Appalachian Basin Assets; Offers Other Updates

Gastar Exploration Inc. (NYSE: GST) announced that it has entered into a definitive purchase and sale agreement ("PSA") to sell certain Appalachian Basin assets primarily located in Marshall and Wetzel Counties, West Virginia. Gastar also provided a summary of the Company's year-end 2015 reserves, updated fourth quarter 2015 results, preliminary pro forma first quarter 2016 guidance and an update on its Meramec well activity.

Summary Highlights

• Gastar has entered into a PSA with an affiliate of Tug Hill Inc. for the sale of certain of its Marcellus Shale and Utica/Point Pleasant properties for $80.0 million, subject to customary closing adjustments. The sale includes substantially all of Gastar's producing assets and proved reserves and a significant portion of its undeveloped acreage in the Appalachian Basin. The sale is expected to close on or before March 31, 2016, subject to customary closing conditions including certain required lessor consents to assign, with an effective date of January 1, 2016. Proceeds will be used to reduce borrowings under Gastar's revolving credit facility.
• Gastar's year-end 2015 Securities Exchange Commission ("SEC") proved reserves decreased by 45% as a result of lower commodity prices to 55.9 million barrels of oil equivalent ("MMBoe"), which is comprised of 43% oil and condensate, 24% natural gas liquids ("NGLs") and 33% natural gas.
• Gastar's Deep River 30-1H well, its first STACK Play formation Meramec Shale test, produced at a gross post-IP 60-day average sales rate of 803 Boe/d (63% oil). Gastar's second Meramec Shale well commenced drilling on February 10, 2016.

J. Russell Porter, Gastar's President and CEO, commented, "The continued decline in already low oil and natural gas prices created challenges in 2015 that persist in 2016. We will continue to focus on preserving liquidity by limiting and delaying expenditures on capital projects. The continued strong production rate of our first Meramec well further confirms the viability and value of our Mid-Continent holdings, and we are optimistic about the drilling of our second Meramec well located in Kingfisher County, Oklahoma."

"With the pending divestiture of our Appalachian Basin acreage, we are able to improve our overall leverage without issuing equity in this depressed commodity price environment. The assets being divested, which we believe are high-quality Marcellus and Utica properties, are generating limited cash flow due to poor realized pricing in the Appalachian Basin. This sale results in Gastar emerging as the only public "pure play" company focused on the Oklahoma STACK Play and enhances our ability to emphasize further exploration and development of our STACK Play acreage. We continue to believe that de-risking and developing the STACK Play can create significant value for our shareholders and achieve solid returns, even at current prices."

"Our SEC proved reserve volumes for year-end 2015 were significantly impacted by the dramatic decline in SEC commodity prices from 2014. We do not believe that the true value of Gastar's resources are reflected in the current proved reserve report, since it does not capture the upside opportunity or the value of our extensive acreage holdings within the STACK Play in Oklahoma."

"Due to uncertainty concerning commodity prices and our 2016 capital resources, Gastar's Board of Directors has not yet approved a full-year 2016 capital plan. We are presently deferring all proved undeveloped ("PUD") reserve drilling until 2017. Our preliminary capital budget for 2016 is approximately $37.0 million, excluding other capitalized costs, which contemplates the drilling and completion of a second operated Meramec well for approximately $5.5 million (gross), $3.5 million net for recompletion projects on producing operated wells in Oklahoma, $8.0 million for our participation in non-operated STACK Play drilling and $20.0 million for maintaining our current Oklahoma leasehold position. Upon the closing of the announced sale of our Appalachian Basin properties and the results of our spring borrowing base redetermination, we will be in a better position to address additional drilling plans."

"The overriding objective of our 2016 capital budget is to maintain our balance sheet, liquidity and extensive Mid-Continent acreage position until commodity prices improve," added Porter.

Tudor, Pickering, Holt & Co. served as financial advisor to Gastar for the sale of the Marcellus Shale and Utica/Point Pleasant properties.

Year-End 2015 Reserve Report

Gastar's year-end 2015 total SEC proved reserves decreased by 46.2 MMBoe to 55.9 MMBoe. The decrease in total proved reserves from year-end 2014 was primarily attributable to a 32% decline in the average price per Boe used to calculate reserves. In the Appalachian Basin, Gastar did not replace production with new reserves due to limited 2015 drilling activity and all PUD locations were deemed uneconomic at year-end 2015 due to decreased SEC 12-month average prices coupled with weak regional pricing. Our Appalachian Basin reserves decreased by 53.2 MMBoe, or 78%, from year-end 2014 to 14.8 MMBoe (substantially all of which are scheduled to be sold in the proposed sale). In Oklahoma, drilling activity generated net proved reserve additions of approximately 7.1 MMBoe, which more than replaced Oklahoma net production of 2.2 MMboe during 2015.

The following table summarizes Gastar's proved reserves as of December 31, 2015 by region and by product:

Of the total year-end 2015 proved reserves, 51% were proved developed and 43% were oil and condensate, 33% were natural gas and 24% were NGLs, compared to 28%, 47% and 25%, respectively, for year-end 2014.

The SEC-priced pre-tax PV-10 (a non-GAAP financial measure defined at the end of this news release) was $229.8 million, compared to $988.7 million at year-end 2014. The calculations of the PV-10 value of our proved reserves for year-end 2015 used SEC benchmark average 12-month pricing of $50.28 per barrel of oil (WTI spot) and $2.59 per MMBtu of natural gas (Henry Hub spot) before adjustments for energy content, quality, transportation, compression and gathering fees and regional price differentials as compared to 2014 prices of $94.99 per barrel of oil and $4.35 per MMBtu of natural gas.

The Mid-Continent represented 73% of proved reserve equivalent volumes at year-end 2015 compared to 33% at year-end 2014, with the Appalachian Basin representing the remainder. The increase in the Mid-Continent proved reserves as a percentage of total proved reserves was primarily due to Gastar's successful 2015 Oklahoma drilling program on its WEHLU and STACK Play acreage, and the significantly reduced drilling program in Appalachia.

PUD reserves at December 31, 2015 accounted for approximately 49% of total proved reserves, compared to approximately 64% at year-end 2014. Mid-Continent PUD reserves at year-end 2015 totaled 27.5 MMBoe with a PV-10 value of $75.0 million, compared to 22.8 MMBoe with a PV-10 value of $381.1 million at year-end 2014. Appalachian Basin PUD reserves and PV-10 value at year-end 2015 were nil, compared to 42.5 MMBoe with a PV-10 value of $163.3 million at year-end 2014. Gastar's total PUD ratio to proven developed locations in Oklahoma was 1.5 at year-end 2015 compared to 2.3 at year-end 2014.

Gastar expects to record a non-cash, pre-tax ceiling test impairment charge of approximately $145 million in the fourth quarter of 2015, subject to the completion of the Company's year-end audit. Further ceiling test impairments are expected in early 2016 as a result of additional declines in the SEC 12-month average commodities prices.

Certain Preliminary Fourth Quarter 2015 Operating Results

Preliminary fourth quarter 2015 average daily production is expected to be between 13.8 MBoe/d and 14.0 MBoe/d, up from 11.7 MBoe/d in the fourth quarter of 2014 and 13.6 MBoe/d in the third quarter of 2015, primarily due to successful drilling activity on Gastar's WEHLU and STACK Play acreage in Oklahoma. Fourth quarter 2015 production exceeded previous guidance primarily due to higher production from our first STACK Play well. Oil and condensate, NGLs and natural gas production as a percentage of total equivalent production volumes for the fourth quarter of 2015 is estimated to be approximately 28%, 28% and 44%, respectively. This compares to 29% oil and condensate, 24% NGLs and 47% natural gas production as a percentage of total equivalent production volumes in the fourth quarter of 2014.

The following table provides a summary of Gastar's preliminary fourth quarter and full-year 2015 production and operating expenses, subject to completion of our year-end audit:

Guidance for Pro Forma First Quarter 2016

We are providing pro forma guidance for the first quarter of 2016 assuming that the closing of the sale of certain Appalachian Basin assets occurred January 1, 2016. The sale is projected to close on or before March 31, 2016, with an effective date of January 1, 2016, and any cash flow for the first quarter associated with the Appalachian Basin assets will result in a reduction in the purchase price. We are not issuing full year guidance due to the uncertainty of our 2016 capital program and our desire to continue to react to commodity prices and capital availability.

Liquidity

Gastar exited 2015 with approximately $50.0 million in available cash and cash equivalents after fully drawing our $200 million revolving credit facility in December. In January 2016, Gastar repaid $10 million of the outstanding borrowings under the revolving credit facility, and currently has $190 million in borrowings outstanding under the revolving credit facility and cash and cash equivalents of approximately $35.5 million. Gastar expects to further reduce its outstanding borrowings under its revolving credit facility with the proceeds from the sale of the Appalachian Basin assets, which is expected to close on or before March 31, 2016, subject to customary closing conditions including certain required lessor consents to assign.

As previously disclosed, Gastar is currently in discussions with its bank lending group to amend its revolving credit facility to provide greater flexibility in future periods with respect to financial covenants. Gastar believes that it will be able to reach a satisfactory agreement with its lenders to amend such financial covenants on or before March 10, 2016 in a manner such that Gastar will reasonably expect to comply with its financial covenants over the next twelve months under the current commodity price outlook. Any such amendment, however, will be subject to the receipt of required approvals from the lenders that are party to the revolving credit facility, and there can be no assurance that Gastar will receive the necessary approvals for any such amendments.

You May Also Be Interested In

• Fisker (FSR) files form 10-K, sees more job cuts, reiterates going concern doubts
• Neo-Concept International Group Holdings (NCI) Prices 2.32M Share IPO at $4/sh
• Ameriserv Financial (ASRV) Reaches Cooperation Agreement with Significant Shareholder SB Value Partners, L.P.