Hi Dan
I was reviewing the Gastar financials trying to figure out the historical cost of the gas assets being sold associated with Marcellus Shale and Utica? They have $ 692 million of net PPE. Is it 400 million?
They had a huge write off so possibly this could result in a profit?
I saw where they spun off rights in a anti-takeover move. Interesting....
Thanks.
Gastar Review
Re: Gastar Review
It is impossible to know their basis in the Marcellus/Utica assets that are up for sale, but their basis is probably more than the anticipated sales price. IMO the book gain or loss is meaningless since all that really matters is the big chunk of cash they will get. Gastar uses the Full Cost accounting method, which does impact the way gains and losses on asset sales are booked.
Gastar does have an offer for their Marcellus/Utica package, which is why TPH closed the dataroom. I do expect the sale to be announced on or before they release Q4 results. NOTHING IS CERTAIN AT THIS TIME. Step one is a signed Purchase & Sales Agreement ("PSA"). It will lock in a sales price and set the closing date. Assuming the PSA is signed in February, closing will probably be March 31 or April 30. Money changes hands at Closing.
A lot of the sales proceeds will be used to pay down their bank credit facility, because the proven reserves being sold are a large part of the security for the credit facility. Also, the credit facility is up for renewal in April and it will probably be reduced anyway.
Gastar is currently drilling the 2nd Meramec horizontal well. This well should prove up a large number of low-risk development drilling locations, maybe more than 100. Other operators are drilling STACK wells all around Gastar's leasehold, which also proves up more locations.
Today, this is the only well Gastar plans to drill in 2016 unless oil prices rebound to over $50/bbl. Almost all of their Oklahoma leasehold is now held by production and they have no further drilling obligations in 2016.
One thing to keep is mind is that, after the sale closes, Gastar will have a high percentage of their oil hedged at $77.71/bbl and more than 100% of their gas hedged at $3.37/mcf for the remainder of 2016. These hedges will lock in decent cash flow from operations through year-end. See their 10-Q for hedges beyond 2016.
Other than their accounts payable and the bank credit facility, Gastar's long-term debt is not due until 2018.
Preferred Stock Dividends:
> The long-term debt holders cannot force Gastar to suspend dividends.
> Wells Fargo (the lead bank on their credit facility) could make it an issue during redetermination in April
> The company could suspend dividends on the preferred, but the Series A and Series B are "cumulative" preferreds, so the dividends will need to be made up in the future anyway.
Gastar is extremely bullish on what they hold up in Oklahoma. I see very little chance of them taking on a joint venture partner.
Gastar is not a viable takeover target because the long-term debt provisions make it payable at 101% of par with a change in ownership. Of course, the Buyer could go out in the market and buy up the debt before making a move on the company (that is exactly what I would do).
Gastar does have an offer for their Marcellus/Utica package, which is why TPH closed the dataroom. I do expect the sale to be announced on or before they release Q4 results. NOTHING IS CERTAIN AT THIS TIME. Step one is a signed Purchase & Sales Agreement ("PSA"). It will lock in a sales price and set the closing date. Assuming the PSA is signed in February, closing will probably be March 31 or April 30. Money changes hands at Closing.
A lot of the sales proceeds will be used to pay down their bank credit facility, because the proven reserves being sold are a large part of the security for the credit facility. Also, the credit facility is up for renewal in April and it will probably be reduced anyway.
Gastar is currently drilling the 2nd Meramec horizontal well. This well should prove up a large number of low-risk development drilling locations, maybe more than 100. Other operators are drilling STACK wells all around Gastar's leasehold, which also proves up more locations.
Today, this is the only well Gastar plans to drill in 2016 unless oil prices rebound to over $50/bbl. Almost all of their Oklahoma leasehold is now held by production and they have no further drilling obligations in 2016.
One thing to keep is mind is that, after the sale closes, Gastar will have a high percentage of their oil hedged at $77.71/bbl and more than 100% of their gas hedged at $3.37/mcf for the remainder of 2016. These hedges will lock in decent cash flow from operations through year-end. See their 10-Q for hedges beyond 2016.
Other than their accounts payable and the bank credit facility, Gastar's long-term debt is not due until 2018.
Preferred Stock Dividends:
> The long-term debt holders cannot force Gastar to suspend dividends.
> Wells Fargo (the lead bank on their credit facility) could make it an issue during redetermination in April
> The company could suspend dividends on the preferred, but the Series A and Series B are "cumulative" preferreds, so the dividends will need to be made up in the future anyway.
Gastar is extremely bullish on what they hold up in Oklahoma. I see very little chance of them taking on a joint venture partner.
Gastar is not a viable takeover target because the long-term debt provisions make it payable at 101% of par with a change in ownership. Of course, the Buyer could go out in the market and buy up the debt before making a move on the company (that is exactly what I would do).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Gastar Review
Then you should short it and tell us how that works out.
Over 100,000 people in the energy sector have lost their jobs turning this cycle. That does not mean the companies they work for are "POS". Believe me, the management of these firms are working very hard to survive through this cycle. At Hess, I lived through five tough periods and I had to personally fire over a hundred people. It sucks and I'm sure a lot of them thought I was a "POS".
As investors, we need to focus on the "now".
Some of the small-caps won't make it, but those that do will generate very big gains. It happens each cycle.
John Templeton once said: "The four most expensive words in the English language are "This time it's different"" What's happening right now is setting up the next Oil Crisis.
Have a good weekend, this is going to be a very interesting year.
Over 100,000 people in the energy sector have lost their jobs turning this cycle. That does not mean the companies they work for are "POS". Believe me, the management of these firms are working very hard to survive through this cycle. At Hess, I lived through five tough periods and I had to personally fire over a hundred people. It sucks and I'm sure a lot of them thought I was a "POS".
As investors, we need to focus on the "now".
Some of the small-caps won't make it, but those that do will generate very big gains. It happens each cycle.
John Templeton once said: "The four most expensive words in the English language are "This time it's different"" What's happening right now is setting up the next Oil Crisis.
Have a good weekend, this is going to be a very interesting year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Gastar Review
That makes more sense. If you are looking for companies to short, I suggest you focus on oilfield service firms.
Upstream companies can "hunker down" and live on the reduced revenue stream from their production. Oilfield service firms revenues go to almost zero in this stage of the cycle. That is where we will see the most bankruptcies.
Upstream companies can "hunker down" and live on the reduced revenue stream from their production. Oilfield service firms revenues go to almost zero in this stage of the cycle. That is where we will see the most bankruptcies.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
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Jacobpilot
Re: Gastar Review
Which Oil field service firms do you feel are at risk of going bankrupt?
Re: Gastar Review
I do not follow any of them closely. All I am saying is that the small companies are in big trouble. Their revenues are directly tied to the active rig count. The big companies like HAL and SLB can survive, but many of the small ones will not make it.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group