Gastar: Analyst's comments

[dan_s]

Gastar Exploration, Ltd. (AMEX: GST; $0.98; Buy; $1.75 PT)
Announces Appalachia sale; preannounces Q4; provides updates on liquidity, ops and Q1:16
> Utica proceeds of $80MM matches our expectations spot on.
> Question turns to how much of GST’s revolver will be cut post a 45% drop in proved reserves.
> Assuming the deal closes, GST will have ~$115MM cash and $190MM drawn on its $200MM revolver, thus if we assume the revolver is cut 50%, GST still has breathing room. Furthermore, we expect management to accelerate the process to divest a portion of its 110K net Mid-con acres, which could be a meaningful deleveraging event without giving up too much acreage upside. Net/net, liquidity is currently stretched, but we think GST’s asset value still far exceeds its enterprise value.

Comments below are from Seaport Global, which has some good energy sector analysts that spun out of Global Hunter.

Gastar Exploration, Ltd. (AMEX: GST; $0.98; Buy; $1.75 PT) Announces Appalachia sale; preannounces Q4; provides updates on liquidity, ops and Q1:16
Appalachia sale: GST announced the sale of ~11K net undeveloped acres and substantially all of GST's Appalachian production (Q3 averaged 47.6 MMcfepd) for $80MM to Tug Hill Inc.; the deal is expected to close on or before 3/31 and has a 1/1 effective date. After ascribing no credit to undeveloped acreage, we estimate the deal fetches ~$1.7K/flowing boe.

Q4:15 preannouncement: Production is expected to average 14.0 Mboepd for the quarter, 4% higher than SGS/the Street at 13.5 Mboepd and 5% higher than prior guidance of 13.1-13.6 Mboepd. The production beat is credited to higher than anticipated volumes from the Deep River. Liquids are expected to comprise 56% of the mix (vs. SGS and Street estimates at ~57%).

Q1:16 guidance: Pro forma for its upcoming Appalachian asset sale, Q1 volumes are guided to 6.4-6.9 Mboepd, 6% higher than our 6.3 Mboepd estimate.

FY16 budget: GST's preliminary capital plan (ex-other capitalized costs) calls for $37.0MM in spending, 10%/44% lower than SGS/Street estimates of $41.3MM/$66.3MM. Specifically, $5.5MM (gross) is slated for GST's next Meramec well (the Holiday Road), $3.5MM net for OK recompletion projects, $8.0MM for non-operated STACK drilling and $20.0MM for maintaining OK leasehold.

Deep River update: The Deep River #30-1H (GST's first Meramec completion) registered a post IP 60 day rate of 803 boepd (63% oil). This compares to a post IP 30 day rate of 956 boepd (68% oil) and a 24-hr IP of 1,094 boepd (71% oil).

Reserves: Proved reserves decreased 45% YoY to 55.9 MMboe (68% liquids vs. 53% last year) and PDP now comprises 51% of the mix (vs. 36% last year). PV-10 decreased 77% to $230MM (predicated on $50.28 oil/$2.59 gas) vs. last year's $989B (at $94.99 oil/$4.35 gas).

Liquidity: stood at $50MM at YE15, including $50MM in cash and $0 available on revolver.

Takeaway: Utica proceeds of $80MM matches our expectations spot on (see our EPS preview); question now turns to how much of GST’s borrowing base will be cut following a 45% drop in its proved reserves, which will be down another 30% pro forma for the Utica sale. Assuming the deal closes, GST will have ~$115MM in cash and $190MM drawn on its $200MM revolver; thus if we assume the revolver is cut 50%, GST still has breathing room, especially with an announced FY16 program ($37MM, which is 44% lower than Street expectations) that we think will be cash flow neutral. Furthermore, we expect management to accelerate the process to divest a portion of its 110K net Mid-con acres, which could be a meaningful deleveraging event without giving up too much acreage upside (we think $5K/acre on ~26K acres in SE Kingfisher and NE Canadian Counties is possible, which would still leave GST with >40K net acres prospective for the Meramec vs. its current ~62.2K net prospective Meramec acres). Net/net, current liquidity is stretched, but we think GST’s asset value still far exceeds its enterprise value and that the same goes for the risk/reward on the stock.

Mike Kelly, CFA (713) 658-6302 mkelly@seaportglobal.com

[dan_s]

So, the real question is: Where do you think oil prices are heading?

If you believe they are staying were they are today, you should sell all of the upstream companies and invest in airline stocks.

If you believe Raymond James forecast of WTI averaging $75/bbl in 2017, then GST at $1.00 has quite a bit of upside.

[wilmawatts]

Sweet, good news. A steal at current prices