Gastar Exploration (GST)

[dan_s]

You should all listen to the webcast they made this week: http://www.gastar.com/eventdetail.cfm?EventID=150065

The big Utica Shale well is great, but IMO the near-term upside they have in Oklahoma is what is going to move this stock up. IRR's in OK are over 50% based on their type curve and they are now beating the type curve.

My updated forecast model will be posted under the Watch List tab shortly.

[dan_s]

Gastar Exploration (GST): An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.

My Fair Value Estimate is $11.00/share.

[wilmawatts]

Sweet. Thanks Dan. I agree with your analysis.

Have a good weekend

[wilmawatts]

Listened to the GST presentation.

Wow.

Thanks for posting the link.

[kenm]

Dan, did you see the projected capex report after the close today? Why is this hitting the after hours market so hard?
Ken

[dan_s]

The Capex budget looks fine to me. Their production guidance looks even better. My valuation model assumes 16,800 boepd for 2015 (which is right at the midpoint of their guidance), but my model had the liquids percentage too low. I will adjust my model to their guidance and post it under the Watch List Tab. I am holding my valuation for GST at $11.00/share.

BTW with all the Hunton wells, I think there is a good chance that 2015 production comes in near the top of 2015 guidance of 18,000 boepd and the percentage of crude oil could go higher.

[dan_s]

This is why it is down after hours:
Gastar Exploration down -6.1% AH after saying it will offer 17M common shares pursuant to a previously filed shelf registration with an underwriters' option to purchase up to an additional 2.55M shares.
GST plans to use the proceeds to repay all outstanding borrowings under its revolving credit facility, to fund its drilling and development program and for general corporate purposes. GST also says its board approved a 2015 capital budget of ~$257M.

More equity means less debt and less interest expense. My valuation dips a bit to $10.75/share.

[dan_s]

Gastar Exploration (GST): The company released their 2015 capital budget and 2015 production guidance. They also said they will sell 17 million shares of common stock. GST plans to use the proceeds to repay all outstanding borrowings under its revolving credit facility, to fund its drilling and development program and for general corporate purposes.

An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.

This is great news for those of you that own the pfd stock. They call it pfd for a reason.

[wilmawatts]

stock getting the good old bodyslam

[ChuckGeb]

Dan You don't waste any time updating the forecasts. Awesome. No wonder you're so good at making the calls!

[dan_s]

IMO the market always over-reacts to these equity offerings. I do not like small-caps with too much debt. Russ Porter hates the banks as they almost destroyed his company when gas prices collapsed a few years ago. This equity offering makes a lot of sense to me.

[ChuckGeb]

The offering certainly enhances the value of the preferred.

[bobs]

Dan et al
This drop due to the secondary was a surprise to most of us I assume but it isn't that uncommon and might be a good reason to perhaps lighten up a portion of a position as the smaller cap stocks rise where they are ramping up the cap ex.
I naturally wish we could rate/predict which smaller caps might fit this category in advance.
Wishful thinking.
Bob

[mkarpoff]

I took this opportunity to add after hours. Great entry point.

[ghrcap]

Nice opportunity today to buy better than the "smart money." Too bad they didn't schedule themselves into SF for IPAA where they could really bang the table with a use of proceeds message. I thought Swift did a nice job this morning too.

[dan_s]

We will be publishing an updated profile on Gastar today.

You make an excellent point. The "smart people" that price a secondary stock offering do a lot of analysis first. If they price it at $6.50 they actually think it is worth a lot more. My Fair Value Estimate for GST is now $10.75.

I have never been able to understand selloffs related to secondary offerings. I know they are dilutive, BUT you do not want to own small-caps that are funding their growth entirely with debt. That is a road to disaster.

GST's production was 9,517 boepd in Q2 and, based on their 2015 guidance, their production will be double that by the end of 2015.

BTW my valuation assumes the full 19,550,000 million shares are sold.