Gastar Exploration (GST)

[dan_s]

Yes, the preferred stock looks like the safe bet.

Check the bottom of my forecast model for GST and you will see that they have 86% of this year's natural gas hedged at $3.52/mcf and 66% of their crude oil hedged at $77/bbl. Recent dip in the oil prices has very little impact on my forecast model.

[bigtex]

i think people are worried about " what happens when the hedges come off The preferred A is getting stupid cheap if they can do ok in 2016??????

[kenm]

I wonder why they are reporting earnings on Friday night after market closes. That is not usually a time to "show off" an earnings report. Isn't this usually more a time companies use to try to de-emphasize a report. I hope I am concerned about nothing.

[bigtex]

however isn't the conf call monday AM????

[dan_s]

You know FEAR is in control when the timing of quarterly earnings releases gets so much attention. GST does have production hedged in 2016 and 2017. See pages 16-17 of their 10-Q for details.

GST is going to be fine. They just got $46 million in cash from the sale of some non-core assets. Cash on the balance sheet + cash flow from operations will fund capex for AT LEAST the next four quarters.

The North American natural gas market is going to be a lot tighter in six months.

If you want to see how GST will do in 2016 at different commodity prices you can do it yourself. Just go to the EPG website and download the GST forecast model to Excel. It is easy. Then change the oil, gas and NGL prices at the bottom to see how it impacts their earnings, cash flows and the stock valuation.
All of the forecast periods in the models on the EPG website are drive by formulas built into Excel.

Just keep in mind that the commodity prices I use in the forecast models include the impact of each companies' hedges and regional price differentials.

[kenm]

Dan, There must be something else at work here with these GST preferreds Yes I am fearful about this one as it is my largest position, not very liquid and has gone down 7 dollars in the last couple weeks since it was called rock solid here.
Can you conjecture as to why this is happening? I called Mike Gerlich (CFO) and he said out of favor oil etc etc, but this seems way overdone if there is nothing wrong with the company.
Please weigh in here. This is not just a routine selloff. Thanks for your ideas.

[bellwj]

It certainly feels like the village idiots are in charge. Perhaps those of us holding GST Pr A or B should check and see whether we are in charge.

[dan_s]

I had an e-mail conversation with Mike yesterday and suggested that they put out an Operations Update. He said they are discussing it. I'm sure they have gotten a lot of calls from shareholders.

Near-term GST has no problem funding their capital program and paying dividends on the preferred stock. The recent non-core asset sale fully funds this year's budget. There hedges insulate them from the recent dip in oil prices. At March 31st the company had $135 million available under their credit facility, but now see no reason for them to tap into it. The $46 million cash they got for the sale takes care of their funding needs through year-end. YOY their production will increase 20% to 25% in 2015. The year-end reserve report should look good.

The best thing that can happen for GST is for natural gas prices to move back to the $3.50 range. The midstream projects being completed this year in the Marcellus/Utica should allow producers in that region to tap into markets with better prices. I believe both of these will happen. The North American gas market is tightening as production continues to fall and demand will be a lot higher in just a few months.

For more on the importance of the midstream projects in the Marcellus/Utica, check out the RRC website.

What GST has in Oklahoma could become extremely valuable. CLR, DVN, NFX and XEC are getting very good results in the SCOOP/STACK plays. GST has 100,000 acres with STACK potential. All four of these Sweet 16 companies will report 2nd quarter results the first week of August and they will all have a lot to say about their results in Oklahoma.

[bobs]

I never have a second thought about EOG and the likes and they obviously haven't dropped near as much as GST but don't have the same upside. I still have a good profit on EOG but have taken a huge hit on the GST common and pfds.
If oil and NG stay at the current sub $50 and $3 levels for like 2 years or so can you comment on GSTs ability to survive under that scenario (I realize that no one knows so any thoughts are appreciated).
I guess they could continue to cut cap ex or perhaps sell off some of their good assets although at those prices are worth way less than if oil was higher.

[dan_s]

You can answer this question yourself by downloading the GST forecast mode from the EPG website to Excel and changing the oil & gas prices at the bottom in the forecast periods. All of the forecasts on the EPG website are macro driven, so when you change production and/or commodity prices at the bottom the spreadsheets automatically update, changing EPS, CFPS and stock valuations.

For GST, if I assume $50 oil, $3.00 natural gas and $20 NGL prices, cash flow from operations (net of interest expense and dividends on their preferred stock) goes to $59.8 million for 2016. Yes, they would survive.

I do not expect commodity prices to stay this low for much longer. If WTI stays under $50/bbl we will see non-OPEC production falling and falling a lot.

[bearcatbob]

"... so when you change production and/or commodity prices at the bottom the spreadsheets automatically update, changing EPS, CFPS and stock valuations."

When one does that, I assume all of the hedge impacts are removed. Is this correct?

If so, one would to calculate a commodity price reflecting hedge contributions.

[dan_s]

The oil, gas and NGL prices used in the forecast models are my estimated "realized prices" for each company. They include the impact of hedges and regional price differentials. Therefore, you need to consider them.

Here is how to do it. Note that a table of each company's hedges is shown on the bottom of each Excel spreadsheet version.
Take the volumes they have hedged each forecast period divided by the forecast volume and multiply it by the hedge price (floor or swap price)
Take the unhedged volume divided by the forecast volume and multiply by the NYMEX commodity price
Add these two together and subtract the regional price difference

For example, let's do it for Gastar
Daily volumes 31,400 mcf hedged / 36,600 mcf forecast = 86%, 86% X an average floor price on their collars of $3.52 = $3.02
So 14% of their forecast volumes are unhedged. 14% X $2.75/mcf (your SWAG of the NYMEX price) = $0.38
$3.02 + $0.38 = $3.40/mcf but we are done. Regional price differentials are high in the Marcellus and Utica, so I subtracted $0.65/mcf
$3.40 - $0.65 = $2.75/mcf, which is what I am using as my forecast realized price for 2H15.

NOTE: On most of the forecast models I give you the percentage hedged for each period.

This is why you guys pay me the Big Bucks. I have been doing E&P company forecasting for decades and this is easy for me. It is really simple math, so just take your time.

[bobs]

Just to clarify it appears that your 2016 GST forecast revenue doesn't include any hedges income and GST doesn't apparently have any reported hedges going into 2016??

[dan_s]

Gains and losses on hedges are broken out when actuals are reported. In the forecast periods the impact of hedges are included in top line revenues.

[dan_s]

Gastar has production hedged through 2018. See page 16 of their 1st quarter 10-Q which shows all their hedges.. Each company lists their hedges in each 10-Q.