HOUSTON, Oct. 20, 2016 /PRNewswire/ -- Gastar
Exploration Inc. (NYSE MKT: GST) ("Gastar" or the "Company")
announced that it has executed a definitive agreement with a large
private global investment fund ("Investor") to jointly develop up
to 60 Gastar operated wells in the STACK Play in Kingfisher County, Oklahoma ("Development
Agreement"). The drilling program ("Drilling Program") will
target the Meramec and Osage
formations within the Mississippi Lime on a contract area within
three townships covering approximately 18,000 undeveloped net
mineral acres under leases held by Gastar. Gastar will be the
operator of all wells jointly developed under the Development
Agreement.
Under the Development Agreement, the Investor will fund 90% of
Gastar's working interest portion of drilling and completion costs
to initially earn 80% of Gastar's working interest in each new well
(in each case, proportionately reduced by other participating
working interests in the well). As a result, Gastar will pay
10% of its working interest portion of such costs for 20% of its
original working interest in the well.
The proposed Drilling Program wells will be mutually developed
in three tranches of 20 wells each. The locations of the
first 20 wells have been mutually agreed upon with 18 wells
targeting the Meramec formation and two wells targeting the
Osage formation. The
locations of the second tranche of 20 Drilling Program wells will
be at the election of the Investor and the third tranche of 20
wells will require mutual consent. With respect to each 20
well tranche, when the Investor has achieved an aggregate 15%
internal rate of return ("IRR") for its investment in the tranche,
its interest will be reduced from 80% to 40% of Gastar's original
working interest and Gastar's working interest increases from 20%
to 60% of Gastar's original working interest. When a tranche
IRR of 20% is achieved by the Investor, its working interest
decreases to 10% and Gastar's working interest increases to 90% of
the working interest originally owned by it. The parties to
the Development Agreement can mutually agree to expand the Drilling
Program's contract area and formation focus.
Key highlights of the Development Agreement are:
- Enhances Gastar's ability to hold acreage by production,
reducing future lease renewal costs;
- Increased drilling activity allows for more rapid delineation
of Gastar's STACK acreage;
- Investor earns only an interest in the well bores drilled under
the Drilling Program, with Gastar retaining all operational control
and right to keep offset formation locations at its full original
working interest.
- Gastar may book offsetting proved undeveloped locations at full
original working interest; and
- Gastar's 10% carried working interest and projected future
reversionary interests will increase production and cash flow while
reducing capital requirements.
J. Russell Porter, Gastar's
President and CEO, commented, "This Development Agreement greatly
expands our ability to delineate and hold our acreage in the STACK
Play without putting undue pressure on our balance sheet or
requiring equity issuances in the current market. The structure of
this Drilling Program, which allows us to revert to 90% of Gastar's
original interest after our partner receives a 20% return, reflects
our confidence in the quality of our acreage. We will also
benefit from information garnered from the Drilling Program to
develop future offset locations for our own interest. We have
already commenced drilling five of the initial 20 wells that will
be included in the first tranche of the Drilling Program. We
also plan to continue to drill and complete wells apart from the
Development Agreement on acreage outside of the contract area as we
further explore and develop our Oklahoma acreage."
Canadian County Property Sale
Gastar has entered into a purchase and sale agreement to sell
certain non-core leasehold interests primarily in northeast
Canadian County and also in
southeast Kingfisher County,
Oklahoma to a private third party for approximately
$71.0 million (of which up to
$10 million is contingent upon the
satisfaction of certain conditions), subject to certain
adjustments. The transaction is expected to close on or
before November 18, 2016, with a
property sale effective date of August 1,
2016.
"The sale of these assets will allow us to focus on and
accelerate our core STACK delineation program in northern
Kingfisher and southern
Garfield Counties, Oklahoma, while significantly enhancing our
liquidity position," said J. Russell
Porter, Gastar's President and CEO.. "Assuming
completion of this transaction, our June 30,
2016 pro forma Mid-Continent area net acreage would be
approximately 83,200 net surface acres, including acreage dedicated
under our Development Agreement, with approximately 1,031 net STACK
locations."
"Upon closing of this sale, we expect to have ample liquidity to
support our capital expenditure plans for the remainder of 2016 and
2017. On a pro forma basis as of September 30, 2016, and after payment of 20% of
the Canadian County net sales
proceeds to reduce revolving credit facility debt, Gastar would
have a cash position of approximately $102.4
million."
The sales price includes allocated value for 19,100 net acres
and current production of approximately 181 barrels of oil
equivalent per day from 25 gross (11.2 net) wells, of which 32% is
oil. The closing of the proposed property sale is subject to the
satisfaction of customary closing conditions.
Revolving Credit Facility Amendment
Effective October 14, 2016, Gastar
entered into an amendment to its revolving credit facility.
Key amendment terms include:
- Borrowing base reaffirmed at $100.0
million (the current amount outstanding under the facility)
with next redetermination scheduled for November 2016;
- Revolver debt balance to be reduced by 20% of any future net
sales proceeds from the sale of the Company's South STACK acreage
primarily located in Canadian County,
Oklahoma;
- Minimum interest coverage ratio reduced to 0.8 to 1.0 for
fourth quarter 2016 and first quarter 2017, 1.0 to 1.0 for second
quarter 2017 and 2.50 to 1.0 thereafter, each as determined using
adjusted EBITDA for previous four quarters; and
- Modifies provisions related to lien and asset dispositions to
accommodate the Drilling Program.
About Gastar Exploration
Gastar Exploration Inc. is a pure play Mid-Continent independent
energy company engaged in the exploration, development and
production of oil, condensate, natural gas and natural gas liquids.
Gastar's principal business activities include the identification,
acquisition, and subsequent exploration and development of oil and
natural gas properties with an emphasis on unconventional reserves,
such as shale resource plays. Gastar holds a concentrated acreage
position in what is believed to be the core of the STACK Play, an
area of central Oklahoma which is
home to multiple oil and natural gas-rich reservoirs including the
Meramec, Oswego, Osage,
Woodford and Hunton formations.
For more information, visit Gastar's website at www.gastar.com.
Forward Looking Statements
This news release includes "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward looking statements give our current
expectations, opinion, belief or forecasts of future events and
performance. A statement identified by the use of forward
looking words including "may," "expects," "projects,"
"anticipates," "plans," "believes," "estimate," "will," "should,"
and certain of the other foregoing statements may be deemed
forward-looking statements. Although Gastar believes that the
expectations reflected in such forward-looking statements are
reasonable, these statements involve risks and uncertainties that
may cause actual future activities and results to be materially
different from those suggested or described in this news
release. These include risks regarding closing the sale of
Gastar's non-core assets in Canadian
County, Oklahoma and in Kingfisher
County, Oklahoma the risk of receipt of the settlement
funds; and other risks described in Gastar's Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and other filings with the
SEC, available at the SEC's website at www.sec.gov. By issuing
forward looking statements based on current expectations, opinions,
views or beliefs, Gastar has no obligation and, except as required
by law, is not undertaking any obligation, to update or revise
these statements or provide any other information relating to such
statements.
Contacts:
Gastar Exploration Inc.
J. Russell Porter, Chief Executive
Officer
713-739-1800 / rporter@gastar.com
Investor Relations Counsel:
Lisa Elliott, Dennard-Lascar
Associates:
713-529-6600 / lelliott@DennardLascar.com
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SOURCE Gastar Exploration Inc.