Energy Prospectus

Noticed that GST went vertical about 12 pm cst on good volume. Hoping they will have something positive to announce Thursday after the close.

DVN and NFX are both reporting outstanding STACK well results in Kingfisher County.

gst's report getting an oh hum from mkt??

Conference Call

Gastar has scheduled a conference call for 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Friday, August 5, 2016. Investors may participate in the call either by phone or audio webcast.

By Phone:

Dial 1-412-902-0030 at least 10 minutes before the call. A telephone replay will be available through August 12 by dialing 1-201-612-7415 and using the conference ID:13641002.

By Webcast:

Visit the Investor Relations page of Gastar's website at www.gastar.com under "Events & Presentations." Please log on a few minutes in advance to register and download any necessary software. A replay will be available shortly after the call.

my take from the call is that this has become a longer term investment than some may like--dead money until next year. hope i'm wrong.

dan, your comments?

My take is that their nine well drilling program MUST be successful in proving up their STACK leasehold. The outside operated wells within their leasehold areas can also help a lot. If the program is successful and oil prices move up, there is HOPE that they will be able to sell a large block of acreage to solve the debt issue.

IMO there is no way for Gastar to drill their way out of this problem. They need a large acreage sale to payoff the debt.

IMO the way to play this is with the preferred stock. Until the preferred stock is caught up on dividends and/or paid off, the common stock is worthless.

If you own the preferred stock you can expect to get common stock in lieu of cash dividends by early in 2017.

I have updated my forecast for Gastar and posted it to the website.

To be VERY CLEAR: Gastar is a HIGH RISK investment.

Dan, Help me out here. The stated issue is debt. Debt is the issue because the POO is low. RJ and others believe the POO is going to $60 plus in Q3. Would not the debt problem go away with an increase in the POO and not require an asset sale?

The same thing applies to NG. You keep mentioning weather scenarios that lead to $4 NG this winter - scenarios that are coming true. When I see companies announce new hedges want to scream. Why should they enter into hedges now if there are higher prices ahead?

Bob

OK - I went to the GST spread sheet and entered $3.50 NG for 2017 and $65 oil for 2017.

Cash flow increased to $.34 per share from $.21 and EPS to $.08 from $-.04.

Fair value increased to $1.68 from $1.07.

It seems to me the best thing is to sell the company if their properties prove up.

well, big mystery for 2017 is production numbers. i'm sure, though, that the numbers dan has in his model are conservative.

i'm going to the house on this one. figure i'll do better with something like dnr.

jim

If the nine well drilling program is successful, it could add 2,000 to 3,000 boepd to production. That would generate decent cash flow from operations, but a large chunk if their debt is due in 2017.

If you look at what MRO paid for the Payrock leasehold (~$12,000/acre), there is a chance that Gastar could sell a large chunk of leasehold to pay off the debt. That has to be the plan.

"In April 2016, Gastar's second operated well testing the Meramec formation, the Holiday Road 2-1H, commenced flow-back. In June 2016, the well was equipped with a larger gas lift system and oil and natural gas production from the well continues to gradually increase. During the most recent 30-day period, the well averaged 267 gross Boe/d (81% oil) and 2,063 barrels of completion fluid. During the most recent five-day period the well produced at a gross average rate of 343 Boe/d (82% oil) and 2,199 barrels of completion fluids. Gastar has a 78.3% working (approximate 63.0% NRI) interest in the Holiday Road 2-1H well. "

Clank?

300+ BOE per day is not a total dud, but definitely not as good as hoped. On the conference call Russ said the Osage zone looked very good on the Holiday Road well and the first well in the nine well program is an Osage well at an offset location to the Holiday Road well.

I listened to the call. It sounds like there is room for improvement yet as over 2000 bpd of fluids are still being produced. I heard them to say it could condemn 1000 acres - but then there was the commentary re the Osage in the well and a nearby Osage being drilled.

When they talk about condemning the acres - is it only for the Mericmac (?) zone? Can that well be recompleted in the Osage?

Yes, only the Meramec. The Osage and Oswego zones are very good in the northern part of the Gastar leasehold. Hunton and Woodford are below the Meramec.

I've seen the comments about the pfds converting to common in 2017. Could Dan or someone further elaborate on the related details which I view as negative because we lose the pfd status. I would presume this action would delute the existing common shareholders significantly but still I'd rather keep my pfd shares.
This is really looking long term at best!

I don't see anything that allows them to convert the preferred stock to common stock. What they will do is pay the dividends on the preferred in common stock beginning next April. This was clarified on the conference call.

IMO the best bet on Gastar is the preferred stock.
1. If the company is taken over by another company, the acquirer will have to redeem the preferred stock at par ($25) + catch up on the dividends.
2. If Gastar is able to sell a chunk of leasehold to solve the debt problem, the preferred stock should move back toward par. Gastar's business plan is to do this.
3. If the nine well drilling program is successful and the price of oil moves above $60/bbl, the preferred stock should move back toward par. Primarily because at $60/bbl for oil the economics on STACK are fantastic, making their leasehold position extremely valuable.

The best thing that Gastar has going for them is that STACK is the hottest oil play in North America. Marathon's recent acquisition of Payrock should give Gastar shareholders a lot of hope. If you go look at Marathon's presentation on the Payrock acquisition, you will see that at least half of Gastar's leasehold is within the area that Marathon considered the best acreage. Marathon will soon have two rigs drilling in the area that Gastar calls "North Stack".

Any company looking at acquiring Gastar will realize the best move is to go out and buy as much of their debt at a deep discount to par before they make a move on the company. I do know that a hedge fund has acquired a lot of Gastar debt at a discount because they see what I see.

thanks for clarifying the pfd/common issue

sweet, thanks Dan

Is this GST-PB for the preferred ?

They are:
GSTPRA
GSTPRB