Gastar Forecast has been updated

[dan_s]

I have updated the Gastar forecast and you can download it from the EPG website.

Focus on Row 47: Operating Cash Flow. Note that Q1 2016 is net of the preferred stock dividends.

The big jump in natural gas prices from Q1 to Q2 is because Gastar is keeping all of their hedges and they will have approximately 150% of their natural gas hedged at $3.37/mmbtu. Assuming they do not monetize the hedges, the quarterly hedge settlements (cash payments) will be added to actual sales and then divided by the produced volumes to get the average realized price. Actual natural gas prices in Oklahoma are a lot higher than in the Marcellus.

[bearcatbob]

" Actual natural gas prices in Oklahoma are a lot higher than in the Marcellus."

Is it fair to assume that Oklahoma prices are close to HH published prices? One can only imagine how bad Marcellus realizations are.

[bigtex]

right now an update on GST issues by you would be good on VF. I took the "rock solid" to VF and several people( some are members here) have the preferreds that really depend on the $$ which they are now not getting. so i am eating crow over there based on info i received here.
i know you are speaking at VF and i know many members of vf are members here, and some have expressed doubts on renewing membership.

a clear explanation like you posted here as to the current financial situation for the preferreds would be nice

i guess you may not wish to do this, but hope is all some of them have to cling to

[Wade4213]

Dan -

If GST is purchased/merged with another STACK producer, what would the likely effect be on Preferred A's (callable 2014) and B's (Call date 2018)?

Thanks

T

[dan_s]

You should all listen to the Q4 conference call. Make sure you open the slides first so you can follow along easier. Listen all the way through the Q&A and you will have a lot better feel of Gastar and where they are heading.

On the preferred stock question. If Gastar is acquired by a large-cap like NFX, the preferred stock will be probably be taken out at par.

[bigtex]

listening to conf call one thing stood out to me and that was the desire to define the assets for a potential exit. first i have heard russ speak that word
thus the sale of 40,000 acres to give them more ability to drill more wells this year

[setliff]

mkt sure liked what they heard. gst up 14% with most of gain coming right after cc.

[dan_s]

For those of you that own Gastar pfd stock, you should all listen carefully to the conference call.

They are selling 26,000 acres in NE Canadian county and a bit in SE Kingfisher. See slide 17 of the presentation.

On the conference call they said there is a lot of interest in this block because multiple STACK zones are present. They expect bids in 3-4 weeks and closing in June or July. The sales price should be high enough to shore up the balance sheet and get Wells Fargo off of their back. Gastar fully intends to catch up on the pfd stock dividends as soon as they can. I'm not sure if this sale will do it, but we should know within a few months.

STACK is now one of the top three oil plays in North America. The core areas generate 30% to 40% IRR even at today's strip prices.

[cmm3rd]

Dan,

Thank you for your continuing analysis.

Re the ongoing process for the possible sale of the undeveloped 26,000 net acres in Canadian and SE Kingfisher counties, I am trying to glean from Russ's comments a range of what they might get for it.

As you know, in the Q&A there was a lot of discussion, including that the acreage's Meramec potential is "as good and potentially better as the northern areas where [they've] already seen some very good well results." When asked about value, specifically whether it would be fair to compare it to the $20k per acre that Devon paid to Felix, Russ replied that they are not expecting that type of valuation, but that they "are not expecting the lower end of some of the research reports I saw last night or this morning,m either."

Do you have access to those research reports Russ was referring to such that we can know what those "lower end" valuations (that would seem to be below what they are expecting) are?

Also, in response to another question, Russ said that the sale proceeds of this acreage "we certainly think it would exceed" the entire ABL. What is the amount of the "entire ABL" in this context? Is it the $100 million borrowing base (after the Appalachian asset sale)?

I am just trying to get a feel for what this 26,000 acres may sell for, if it is sold, and would appreciate any thoughts.

TIA

[dan_s]

It is hard for me to speculate on what the 26,000 acreage block is worth. You can see a map of where it is located on slide 17 of their most recent presentation. I agree with Russ that it not as valuable as the acreage Devon purchased from Felix at over $20,000/acre in December, but it may be worth half that amount. Again, I say "may" as I have no idea.

My "guess" is that half of the sales proceeds will go to Wells Fargo, to get the bank off their back. From what I heard on the CC, a large portion of the proceeds would go to buy back their debt on the open market at less than 50 cents on the dollar. If they can retire a large chunk of that debt, the balance sheet will be in good shape.

On the conference call, Mike said they expect bids in 3-4 weeks.

Here are the steps that could lead to a nice comeback by GST:
1. Close the Marcellus/Utica sale on 3/31, which will eliminate the "Fear" that it might not close. Keep in mind the Buyer will forfeit $8 million if they do not close.
2. Report a nice sales price on the 26,000 acreage block in early April.
3. Report strong well results from the 2nd Meramec well. The log does look very good.

Note that Gastar will have an average working interest of 7% in up to 15 new STACK wells operated by others, including NFX and DVN. This should give Gastar some good news to report throughout the year.