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Gastar Exploration Inc. Reports Second Quarter 2014 Results

August 7, 2014

- Liquids as a percentage of production grow to 48%

HOUSTON, Aug. 7, 2014 /PRNewswire/ — Gastar Exploration Inc. (NYSE MKT: GST) (“Gastar”) today reported financial and operating results for the three and six months ended June 30, 2014.

Net income attributable to Gastar’s common stockholders for the second quarter of 2014 was $2.0 million, or $0.03 per diluted share. Excluding the impact of a $5.4 million loss resulting from the mark-to-market of outstanding hedge positions, adjusted net income attributable to common stockholders was $7.5 million, or $0.12 per diluted share. Second quarter 2014 net income and adjusted net income include a net benefit of $8.6 million, or $0.14 per diluted share, related to an arbitration settlement. This compares to second quarter 2013 net income of $51.8 million, or $0.81 per diluted share, and adjusted net income of $3.4 million, or $0.05 per diluted share, excluding the impact of a $7.5 million gain resulting from the mark-to-market of outstanding hedge positions, non-recurring charges of $2.8 million and a $43.7 million non-cash fair value gain on the acquisition of assets. (See the accompanying reconciliation of net income to net income excluding special items at the end of this news release.)

Adjusted earnings before interest, income taxes, depreciation, depletion and amortization (“adjusted EBITDA”) for the second quarter of 2014 was $29.4 million, an increase of 75% compared to $16.8 million for the second quarter of 2013 and a 13% increase over the first quarter 2014 results. (See the accompanying reconciliation of net income to adjusted EBITDA at the end of this news release.)

Revenues from oil, condensate, natural gas and natural gas liquids (“NGLs”) before the impact of hedging activities increased 88% to $44.8 million in the second quarter of 2014, up from $23.9 million for the same period of 2013. Current quarter oil, condensate, natural gas and NGLs revenues include a gross revenue benefit of $10.6 million related to a West Virginia natural gas contract arbitration settlement. Excluding the arbitration settlement, second quarter 2014 oil, condensate, natural gas and NGLs revenues increased 43% over the second quarter 2013. The increase in oil, condensate, natural gas and NGLs revenues was primarily the result of substantially higher weighted average equivalent realized prices due to increased liquids production. Excluding the benefit of the arbitration settlement, weighted average realized prices increased 45% for the second quarter of 2014 compared to the same period in 2013.

Revenues from liquids (oil, condensate and NGLs) represented approximately 61% of total production revenues in the second quarter, or 72% of revenues excluding the benefit from the arbitration settlement. This compares to 48% for the second quarter of 2013 and 60% for the first quarter of 2014. We had hedges in place covering approximately 99% of our natural gas production, 60% of our oil and condensate production and 82% of our NGLs production for the second quarter of 2014. Commodity derivative contracts settled during the periods resulted in a $3.5 million reduction in revenue for the second quarter of 2014 compared to a $449,000 decrease in revenue for the second quarter of 2013 and a first quarter of 2014 decrease in revenue of $3.4 million. We continue to maintain an active hedging program covering a portion of our estimated future production, which is reported in our periodic filings with the U.S. Securities and Exchange Commission (“SEC”).

Average daily production for the second quarter of 2014 was 9.5 thousand barrels of oil equivalent per day (“MBoe/d”), a 1% decrease compared to the same period in 2013 and a 2% decrease compared to the first quarter of 2014. Oil, condensate and NGLs as a percentage of production volumes were 48% in the second quarter of 2014 compared to 30% in the second quarter of 2013 and 41% in the first quarter of 2014. The arbitration settlement had no impact on production volumes.

J. Russell Porter, Gastar’s President and CEO, stated, “During the second quarter, we spud several important wells that, if successful, could substantially increase both our remainder of the year 2014 production and year-end proved reserves, while also increasing our drilling inventory. On our Mid-Continent WEHLU acreage that we acquired in November 2013, we completed our first horizontal well, the Easton 22-1H, in the Lower Hunton oil formation. After less than two weeks on flow back operations and the recovery of less than 2% of the completion fluids, the well’s most recent five day average gross production is 460 barrels of oil equivalent per day (Boe/d), of which 88% is oil. We are optimistic that this well could be the first step in significantly de-risking the Lower Hunton formation on a portion of our 24,000 WEHLU net acres and allow us to start booking additional proved undeveloped oil reserves. We also completed our first Upper Hunton well, the Easton 22-2H, on our WEHLU acreage. Early results from the flow back of the Easton 22-2H are also encouraging, as the well has been on for less than two days and is currently producing 224 Boe/d, of which 93% is oil. In West Virginia, we just completed the fracture stimulation of our first Utica/Point Pleasant well, the Simms U-5H, with a 25-stage fracture stimulation. We are very encouraged by how the 92 feet of high porosity pay zone in the well responded to fracture stimulation. We are currently allowing the well to soak and anticipate commencing flow back operations in about three weeks. If successful, this well could confirm our first Utica/Point Pleasant proved reserve potential and value and also add significantly to our West Virginia drilling inventory.”

The following table provides a summary of Gastar’s production volumes and average commodity prices for the three and six months ended June 30, 2014 and 2013:

                                For the Three Months Ended       For the Six Months Ended
                                         June 30,                        June 30,
                                         --------                        --------

                                   2014                     2013                         2014    2013
                                   ----                     ----                         ----    ----

    Production:

    Oil and condensate (MBbl)       207                      127                          410     205

    Natural gas (MMcf)            2,680                    3,692                        5,752   6,391

    NGLs (MBbl)                     208                      130                          363     210

    Total production (MBoe)         861                      873                        1,732   1,481

    Daily Production:

    Oil and condensate (MBbl/d)     2.3                      1.4                          2.3     1.1

    Natural gas (MMcf/d)           29.5                     40.6                         31.8    35.3

    NGLs (MBbl/d)                   2.3                      1.4                          2.0     1.2

    Total daily production
     (MBoe/d)                       9.5                      9.6                          9.6     8.2

    Average sales price per
     unit(1):

    Oil and condensate per Bbl,
     including impact of
     hedging(2)                            $87.30                           $62.97            $83.47  $68.93

    Oil and condensate per Bbl,
     excluding impact of
     hedging                               $92.84                           $63.36            $87.77  $65.07

    Natural gas per Mcf,
     including impact of
     hedging(2)                             $3.03                            $3.26             $3.73   $3.64

    Natural gas per Mcf,
     excluding impact of
     hedging                                $3.52                            $3.36             $4.32   $3.13

    NGLs per Bbl, including
     impact of hedging(2)                  $21.92                           $25.93            $29.07  $32.92

    NGLs per Bbl, excluding
     impact of hedging                     $26.88                           $26.17            $33.69  $27.54

    Average sales price per
     Boe, including impact of
     hedging(2)                            $35.67                           $26.85            $38.23  $29.95

    Average sales price per
     Boe, excluding impact of
     hedging                               $39.72                           $27.36            $42.19  $26.44

    (1)              The three and six months
                     ended June 30, 2014 pricing
                     exclude the benefit of a
                     revenue adjustment related
                     to an arbitration
                     settlement.

    (2)              The impact of hedging
                     includes the gain (loss) on
                     commodity derivative
                     contracts settled during
                     the periods presented.

Lease operating expenses (“LOE”) were $4.9 million for the second quarter of 2014, including a one-time reduction of $185,000 related to the arbitration settlement, compared to $2.2 million in the second quarter of 2013 and $4.0 million in the first quarter of 2014. The increase in LOE compared to the prior-year period was primarily due to additional expenses resulting from new wells and higher overall costs associated with producing liquids versus natural gas. Additionally, the second quarter of 2014 includes approximately $350,000 of costs associated with pump repair and scale removal. LOE per Boe of production increased to $5.66 in the second quarter of 2014 – or $5.88 excluding the benefit of the arbitration settlement — versus $2.48 in the second quarter of 2013 and $4.65 in the first quarter of 2014.

Depreciation, depletion and amortization expense (“DD&A”) was $10.3 million in the second quarter of 2014, up from $7.6 million in the prior-year period and down from $12.4 million in the first quarter of 2014. The year-over-year increase in DD&A expense is the result of higher cost liquids-focused acquisitions and drilling. The DD&A rate for the second quarter of 2014 was $11.94 per Boe compared to $8.70 per Boe for the same period in 2013 and $14.23 in the first quarter of 2014.

General and administrative (“G&A”) expense was $3.9 million in the second quarter of 2014, down from $5.0 million in the same period of 2013. G&A expense for the second quarter of 2014 included $1.0 million of non-cash, stock-based compensation expense, versus $1.1 million a year ago. Excluding stock compensation expense, cash G&A expense declined to $2.9 million from $3.9 million in the second quarter of 2013. This decrease was primarily the result of $1.4 million of acquisition-related costs incurred in the second quarter of 2013, partially offset by the current year’s higher personnel costs due to our growing asset base.

Interest expense totaled $6.9 million in the second quarter of 2014, compared with $3.5 million in the second quarter of 2013. The increase was the result of the issuance in May and November of 2013 of $325.0 million of 8 5/8% Senior Secured Notes due May 2018.

Operations Review and Update

Mid-Continent

Currently, we have one operated rig running outside of our AMI acreage and four non-operated rigs running on our AMI acreage. Net production from the Mid-Continent area averaged 4.1 MBoe/d in the second quarter of 2014, compared to 0.6 MBoe/d for the second quarter of 2013 and 3.3 MBoe/d in the first quarter of 2014, a 26% sequential quarter growth rate. Mid-Continent production consisted of approximately 45% oil, 28% natural gas and 27% NGLs, yielding a liquids to total equivalent production percentage of 72% in the second quarter of 2014. Within our AMI acreage, Gastar participated in 14 gross (5.4 net) non-operated wells during the second quarter of 2014. Subsequent to the end of the first quarter of 2014, six gross (2.7 net) non-operated wells were placed on production, four gross (1.5 net) wells were drilled and are awaiting completion and four gross (1.3 net) wells are currently being drilled. The table below shows wells brought on production or commenced drilling operations since the beginning of the second quarter of 2014 within our original AMI in the Hunton Limestone formation:

                                                                          Cumulative Production
                                                                               Averages(2)
                                                                                ----------

              Well Name Current        Approximate        Initial                 BOE/d             % Oil                   Date of     Approximate
                        Working          Lateral         Production                                                          First      Gross Costs
                        Interest         Length           Rates(1)                                                         Production   to Drill &
                                        (in feet)         (BOE/d)                                                        or Status (3)   Complete
                                                                                                                                       ($ millions)
    ---                                                                                                                                 -----------

    Gamebird 1-7H                48.4%             4,400              653                       427         87%   April 3, 2014                       $5.5

    Sieber 1-31H                 33.7%             4,400            1,013                       697         80%   April 13, 2014                      $5.2

    Kodiak 1-29H                 45.3%             4,300            1,666                     1,042         80%   May 4, 2014                         $5.1

    Anna Lee
     1-30H                       50.0%             4,400              N/A                       62         88%   May 20, 2014                        $5.1

    Vaverka 1-20H                46.9%             4,400              N/A                      N/A        N/A   July 10, 2014                       $5.1

    Sasquatch
     1-23H                       43.4%             4,800              N/A                      N/A        N/A   July 27, 2014                       $5.0

    Hobbs Ranch
     1-19H                       29.5%             4,400              N/A                      N/A        N/A   WOC                                  N/A

    Yeti 1-29H                   32.8%             5,300              N/A                      N/A        N/A   WOC                                  N/A

    Jam 1-4H                     25.0%             4,700              N/A                      N/A        N/A   WOC                                  N/A

    Cline 1-13H                  54.3%             5,100              N/A                      N/A        N/A   WOC                                  N/A

    Michael J
     1-18H                       33.3%             5,000              N/A                      N/A        N/A   Drilling                             N/A

    Snowman 1-19H                36.1%             5,000              N/A                      N/A        N/A   Drilling                             N/A

    Danny Ray
     1-30H                       31.7%             5,000              N/A                      N/A        N/A   Drilling                             N/A

    Shimanek 1-2H                33.7%             5,000              N/A                      N/A        N/A   Drilling                             N/A

    (1)              Represents highest daily gross
                     BOE rate to date.

    (2)              Represents average for actual
                     producing days through July
                     31, 2014.

    (3)             WOC - waiting on completion.

Within our operated acreage in Oklahoma, we currently have five gross (4.7 net) wells producing. The Easton 22-1H, targeting the lower Hunton formation, as well as the Easton 22-2H, targeting the upper Hunton, have both been recently placed on production. We are also drilling an additional Lower Hunton completion, the Horseshoe 3-1H, that should commence flow back operations in early September 2014.

Our previously announced 2014 capital budget for the Mid-Continent play has been increased by $19 million to $133 million to fund additional Hunton AMI wells. The new capital expenditure budget is comprised of $108 million for drilling, completion and infrastructure costs and $25 million for automatic lease extensions and leasing. In the Mid-Continent, net capital expenditures in the second quarter of 2014 totaled $24 million, resulting in current year to date total capital expenditures of $51 million.

Appalachia

Net production from the Marcellus Shale area averaged 5.4 MBoe/d in the second quarter of 2014, compared to 7.4 MBoe/d for the second quarter of 2013 and 6.4 MBoe/d in the first quarter of 2014. Second quarter 2014 production was reduced by approximately 0.4 MBoe/d due to previously announced third-party pipeline issues. Volumes were down sequentially due to natural production declines, the temporary shut-in of four producing Goudy Marcellus Shale wells and three Simms Marcellus Shale wells in April 2014 in anticipation of completion or drilling operations on their respective pads. The four Goudy wells were returned to production in July 2014 and the Simms wells should be returned to production by late August 2014.

In Marshall County, West Virginia, we had anticipated completing three additional gross (1.5 net) Marcellus Shale wells on the Goudy pad late in the first quarter of 2014, but completion continues to be delayed pending the resolution of a non-lessee surface owner dispute. Currently, we plan to complete seven gross (3.5 net) wells on the Armstrong pad and three gross (1.5 net) wells from the Hansen pad in the fourth quarter of 2014. The completion of these wells has been delayed while the designated rig was drilling the Utica/Point Pleasant well. By year-end 2014, we expect 67 total gross operated Marcellus wells to be capable of production in the area.

Our previously announced 2014 capital budget for Appalachia has been increased by $17 million to $86 million to fund additional Utica/Point Pleasant and Marcellus Shale drilling. The new capital expenditure budget is comprised of $77 million for drilling, completion and infrastructure costs and $9 million for acreage. Net capital expenditures in Appalachia for the second quarter of 2014 totaled $12 million, resulting in current year to date total capital expenditures of $20 million.

Guidance for the Third Quarter of 2014

We are updating previously issued guidance for the full-year 2014 and providing the following guidance for the third quarter of 2014:

    Production                           Third Quarter        Full-Year
                                                        2014            2014
    ---                                                 ----            ----

    Net average daily (MBoe/d)(1)          9.5 - 9.9         10.2 - 10.6

    Liquids percentage                             44% - 47%     45% - 48%

    Cash Operating Expenses              Third Quarter        Full-Year
    ($ / Boe)                                           2014            2014
    ---------                                           ----            ----

    Production taxes                           $1.60 - $1.70  $1.70 - $1.90

    Direct lease operating                     $5.25 - $5.50  $5.00 - $5.30

    Transportation, treating & gathering       $0.60 - $0.70  $0.60 - $0.70

    Cash general & administrative              $3.20 - $3.35  $3.00 - $3.30

    (1)              Based on equivalent of 6
                     thousand cubic feet ("Mcf")
                     of natural gas to one barrel
                     of oil, condensate or NGLs.

Liquidity

At June 30, 2014 we had $24.8 million in available cash and cash equivalents and an undrawn $100.0 million on our revolving credit facility. We expect to fund our remaining 2014 capital program through existing cash balances, internally generated cash flow from operating activities, borrowings under the revolving credit facility, possible divestiture of assets and the possible issuance of debt or equity securities or some combination thereof.

Conference Call

Gastar has scheduled a conference call for 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Friday, August 8. Investors may participate in the call either by phone or audio webcast.

    By Phone:   Dial 1-888-450-9962 at least 10 minutes before
                the call. A telephone replay will be
                available through August 15 by dialing
                1-800-804-7944 and using the conference ID
                47755.

    By Webcast: Visit the Investor Relations page of Gastar's
                website at www.gastar.com under "Events &
                Presentations." Please log on at least 10
                minutes in advance to register and download
                any necessary software. A replay will be
                available shortly after the call.

For more information, please contact Donna Washburn at Dennard-Lascar Associates at 713-529-6600 or e-mail dwashburn@DennardLascar.com.

About Gastar

Gastar Exploration Inc. is an independent energy company engaged in the exploration, development and production of oil, natural gas, condensate and NGLs in the United States. Gastar’s principal business activities include the identification, acquisition, and subsequent exploration and development of oil and natural gas properties with an emphasis on unconventional reserves such as shale resource plays. Gastar is currently pursuing development within the primarily oil-bearing reservoirs of the Hunton Limestone horizontal oil play in Oklahoma and the development of liquids-rich natural gas in the Marcellus Shale play and dry gas in the Utica Shale play in West Virginia. For more information, visit Gastar’s website at www.gastar.com.

Forward Looking Statements

This news release includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements give our current expectations, opinion, belief or forecasts of future events and performance. A statement identified by the use of forward looking words including “may,” “expects,” “projects,” “anticipates,” “plans,” “believes,” “estimate,” “will,” “should,” and certain of the other foregoing statements may be deemed forward-looking statements. Although Gastar believes that the expectations reflected in such forward-looking statements are reasonable, these statements involve risks and uncertainties that may cause actual future activities and results to be materially different from those suggested or described in this news release. These include risks inherent in natural gas and oil drilling and production activities, including risks of fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpected formation pressures, environmental hazards, and other operating and production risks, which may temporarily or permanently reduce production or cause initial production or test results to not be indicative of future well performance or delay the timing of sales or completion of drilling operations; delays in receipt of drilling permits; risks with respect to natural gas and oil prices, a material decline in which could cause Gastar to delay or suspend planned drilling operations or reduce production levels; risks relating to the availability of capital to fund drilling operations that can be adversely affected by adverse drilling results, production declines and declines in natural gas and oil prices; risks relating to unexpected adverse developments in the status of properties; borrowing base redeterminations by our banks; risks relating to the absence or delay in receipt of government approvals or fourth party consents; risks relating to our ability to integrate acquired assets with ours and to realize the anticipated benefits from such acquisitions; and other risks described in Gastar’s Annual Report on Form 10-K and other filings with the SEC, available at the SEC’s website at www.sec.gov. Our actual sales production rates can vary considerably from tested initial production rates depending upon completion and production techniques and our primary areas of operations are subject to natural steep decline rates. By issuing forward looking statements based on current expectations, opinions, views or beliefs, Gastar has no obligation and, except as required by law, is not undertaking any obligation, to update or revise these statements or provide any other information relating to such statements.

Unless otherwise stated herein, equivalent volumes of production and reserves are based upon an energy equivalent ratio of six Mcf of natural gas to each barrel of liquids (oil, condensate and NGLs), which ratio is not reflective of relative value. Our NGLs are sold as part of our wet gas subject to an incremental NGLs pricing formula based upon a percentage of NGLs extracted from our wet gas production. Our reported production volumes reflect incremental post-processing NGLs volumes and residual gas volumes with which we are credited under our sales contracts.

Gastar’s capital budget is subject to revision and reevaluation dependent upon future developments including drilling results, availability of crews, supplies and production capacity, weather delays, significant changes in commodities prices or drilling costs.

Contacts:
Gastar Exploration Inc.
Michael A. Gerlich, Chief Financial Officer
713-739-1800 / mgerlich@gastar.com

Investor Relations Counsel:
Lisa Elliott / Anne Pearson Dennard-Lascar Associates: 713-529-6600
lelliott@DennardLascar.com / apearson@DennardLascar.com

- Financial Tables Follow -

                                                                         GASTAR EXPLORATION INC. AND SUBSIDIARIES

                                                                           CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   For the Three Months                              For the Six Months
                                                      Ended June 30,                                   Ended June 30,
                                                      --------------                                   --------------

                                                  2014                                 2013                                  2013           2012
                                                  ----                                 ----                                  ----           ----

                                                              (in thousands, except share and per share data)

    REVENUES:

    Oil and condensate                                    $22,342                                            $8,065                     $39,120  $13,350

    Natural gas                                 17,559                               12,413                                32,978         20,014

    NGLs                                         4,906                                3,412                                11,550          5,792
                                                 -----                                -----                                ------          -----

    Total oil, condensate, natural gas
     and NGLs revenues                          44,807                               23,890                                83,648         39,156

    (Loss) gain on commodity
     derivatives contracts                     (8,910)                               7,036                              (15,424)         3,034
                                                ------                                -----                               -------          -----

    Total revenues                              35,897                               30,926                                68,224         42,190

    EXPENSES:

    Production taxes                             2,037                                1,150                                 3,931          1,793

    Lease operating expenses                     4,877                                2,169                                 8,921          4,006

    Transportation, treating and
     gathering                                   2,146                                1,124                                 2,771          2,288

    Depreciation, depletion and
     amortization                               10,280                                7,596                                22,662         12,961

    Accretion of asset retirement
     obligation                                    125                                  114                                   247            216

    General and administrative expense           3,893                                4,964                                 8,656          7,966

    Litigation settlement expense                    -                                   -                                    -         1,000
                                                   ---                                 ---                                  ---         -----

    Total expenses                              23,358                               17,117                                47,188         30,230
                                                ------                               ------                                ------         ------

    INCOME FROM OPERATIONS                      12,539                               13,809                                21,036         11,960

    OTHER INCOME (EXPENSE):

    Gain on acquisition of assets at
     fair value                                      -                              43,712                                     -        43,712

    Interest expense                           (6,912)                             (3,545)                             (13,803)       (4,154)

    Investment income and other                      4                                    5                                    11              8

    Foreign transaction loss                       (4)                                (11)                                  (6)          (12)
                                                   ---                                  ---                                   ---            ---

    INCOME BEFORE PROVISION FOR INCOME
     TAXES                                       5,627                               53,970                                 7,238         51,514

    Provision for income taxes                       -                                   -                                    -             -
                                                   ---                                 ---                                  ---           ---

    NET INCOME                                   5,627                               53,970                                 7,238         51,514

    Dividends on preferred stock               (3,611)                             (2,134)                              (7,187)       (4,264)
                                                ------                               ------                                ------         ------

    NET INCOME ATTRIBUTABLE TO COMMON
     STOCKHOLDERS                                          $2,016                                           $51,836                         $51  $47,250
                                                           ======                                           =======                         ===  =======

    NET INCOME PER SHARE OF COMMON STOCK
     ATTRIBUTABLE TO COMMON STOCKHOLDERS:

    Basic                                                   $0.03                                             $0.83                 $         -   $0.75
                                                            =====                                             =====               ===       ===   =====

    Diluted                                                 $0.03                                             $0.81                 $         -   $0.74
                                                            =====                                             =====               ===       ===   =====

    WEIGHTED AVERAGE SHARES OF COMMON STOCK
     OUTSTANDING:

    Basic                                   58,702,982                           62,398,472                            58,462,124     63,089,987

    Diluted                                 61,922,874                           63,813,423                            61,674,267     63,699,525

                                                     GASTAR EXPLORATION INC. AND SUBSIDIARIES

                                                            CONSOLIDATED BALANCE SHEETS

                                                                         June 30, 2014                  December 31, 2013
                                                                         -------------                  -----------------

                                                                               (in thousands, except share data)

                                         ASSETS

    CURRENT ASSETS:

    Cash and cash equivalents                                                              $24,763                           $32,393

    Accounts receivable, net of allowance for doubtful
     accounts of $0 and $507, respectively                                      20,406                               21,656

    Commodity derivative contracts                                                 223                                    -

    Prepaid expenses                                                               982                                1,145
                                                                                   ---                                -----

    Total current assets                                                        46,374                               55,194
                                                                                ------                               ------

    PROPERTY, PLANT AND EQUIPMENT:

    Oil and natural gas properties, full cost method of accounting:

    Unproved properties, excluded from amortization                            104,545                               96,220

    Proved properties                                                        1,000,211                              935,773
                                                                             ---------                              -------

    Total oil and natural gas properties                                     1,104,756                            1,031,993

    Furniture and equipment                                                      2,849                                2,691
                                                                                 -----                                -----

    Total property, plant and equipment                                      1,107,605                            1,034,684

    Accumulated depreciation, depletion and
     amortization                                                            (539,833)                           (517,171)
                                                                              --------                             --------

    Total property, plant and equipment, net                                   567,772                              517,513

    OTHER ASSETS:

    Commodity derivative contracts                                               2,009                                7,545

    Deferred charges, net                                                        2,901                                2,950

    Advances to operators and other assets                                       7,464                                6,733
                                                                                 -----                                -----

    Total other assets                                                          12,374                               17,228
                                                                                ------                               ------

    TOTAL ASSETS                                                                          $626,520                          $589,935
                                                                                          ========                          ========

                          LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES:

    Accounts payable                                                                       $11,921                           $11,046

    Revenue payable                                                             27,386                               12,514

    Accrued interest                                                             3,528                                3,504

    Accrued drilling and operating costs                                         5,591                                8,756

    Advances from non-operators                                                  9,785                                9,259

    Commodity derivative contracts                                               6,626                                3,403

    Commodity derivative premium payable                                         1,377                                  145

    Asset retirement obligation                                                     42                                  633

    Other accrued liabilities                                                    3,169                                4,844
                                                                                 -----                                -----

    Total current liabilities                                                   69,425                               54,104
                                                                                ------                               ------

    LONG-TERM LIABILITIES:

    Long-term debt                                                             334,120                              312,994

    Commodity derivative contracts                                                 234                                  378

    Commodity derivative premium payable                                         5,952                                7,000

    Asset retirement obligation                                                  5,767                                5,430

    Total long-term liabilities                                                346,073                              325,802
                                                                               -------                              -------

    Commitments and contingencies

    STOCKHOLDERS' EQUITY:

    Preferred stock, 40,000,000 shares authorized

      Series A Preferred stock, $0.01 par value;
       10,000,000 shares authorized; 4,045,000 and
       3,958,160 shares issued and outstanding at June
       30, 2014 and December 31, 2013, respectively,
       with liquidation preference of $25.00 per share                              41                                   40

      Series B Preferred stock, $0.01 par value;
       10,000,000 shares authorized; 2,140,000 shares
       issued and outstanding at June 30, 2014 and
       December 31, 2013, respectively, with liquidation
       preference of $25.00 per share                                               21                                   21

    Common stock, $0.001 par value; 275,000,000 shares
     authorized; 61,796,023 and 61,211,658 shares
     issued and outstanding at June 30, 2014 and
     December 31, 2013, respectively                                                61                                   61

    Additional paid-in capital                                                 465,671                              464,730

    Accumulated deficit                                                      (254,772)                           (254,823)
                                                                              --------                             --------

    Total stockholders' equity                                                 211,022                              210,029
                                                                               -------                              -------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $626,520                          $589,935
                                                                                          ========                          ========

                                             GASTAR EXPLORATION INC. AND SUBSIDIARIES

                                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                   For the Six Months Ended
                                                                           June 30,
                                                                           --------

                                                                    2014                          2013
                                                                    ----                          ----

                                                                      (in thousands)

    CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income                                                               $7,238                    $51,514

    Adjustments to reconcile net income to net cash
     provided by operating activities:

    Depreciation, depletion and
     amortization                                                 22,662                        12,961

    Stock-based compensation                                       2,532                         1,966

    Mark to market of commodity derivatives contracts:

    Total loss on commodity derivatives
     contracts                                                    15,424                       (3,034)

    Cash settlements of matured commodity
     derivatives contracts, net                                  (6,061)                        5,596

    Cash premiums paid for commodity
     derivatives contracts                                         (155)                         (27)

    Amortization of deferred financing
     costs                                                         1,491                         1,450

    Accretion of asset retirement
     obligation                                                      247                           216

    Settlement of asset retirement
     obligation                                                    (546)                            -

    Gain on acquisition of assets at fair
     value                                                             -                     (43,712)

    Changes in operating assets and liabilities:

    Accounts receivable                                          (2,827)                           29

    Prepaid expenses                                                 112                           259

    Accounts payable and accrued
     liabilities                                                   9,649                         9,814
                                                                   -----                         -----

    Net cash provided by operating
     activities                                                   49,766                        37,032
                                                                  ------                        ------

    CASH FLOWS FROM INVESTING ACTIVITIES:

    Development and purchase of oil and
     natural gas properties                                     (55,295)                     (55,955)

    Advances to operators                                       (20,657)                      (5,154)

    Acquisition of oil and natural gas
     properties -refund (expenditure)                              4,209                      (69,775)

    Sale of oil and natural gas properties                         3,077                         2,300

    Proceeds from non-operators                                      526                        12,874

    Purchase of furniture and equipment                            (158)                        (151)
                                                                    ----                          ----

    Net cash used in investing activities                       (68,298)                    (115,861)
                                                                 -------                      --------

    CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from revolving credit facility                       35,000                        19,000

    Repayment of revolving credit facility                      (15,000)                    (117,000)

    Proceeds from issuance of senior
     secured notes, net of discount                                    -                      194,500

    Repurchase of outstanding common shares                            -                      (9,753)

    Proceeds from issuance of preferred
     stock, net of issuance costs                                  2,064                           133

    Dividends on preferred stock                                 (7,187)                      (3,554)

    Deferred financing charges                                     (319)                      (2,355)

    Tax withholding related to restricted
     stock and PBU vestings                                      (3,656)                        (244)
                                                                  ------                          ----

    Net cash provided by financing
     activities                                                   10,902                        80,727
                                                                  ------                        ------

    NET (DECREASE) INCREASE IN CASH AND
     CASH EQUIVALENTS                                            (7,630)                        1,898

    CASH AND CASH EQUIVALENTS, BEGINNING OF
     PERIOD                                                       32,393                         8,901
                                                                  ------                         -----

    CASH AND CASH EQUIVALENTS, END OF
     PERIOD                                                                 $24,763                    $10,799
                                                                            =======                    =======

NON-GAAP FINANCIAL INFORMATION AND RECONCILIATION

We use both GAAP and certain non-GAAP financial measures to assess performance. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Our management believes that these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate our financial performance using the same measures as management. These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts. A reconciliation is provided below outlining the differences between these non-GAAP measures and their most directly comparable financial measure calculated in accordance with GAAP.

                                                   Reconciliation of Net Income to Net Income Excluding Special Items:

                                   For the Three Months Ended                        For the Six Months Ended
                                            June 30,                                         June 30,
                                            --------                                         --------

                                     2014                                 2013                                  2014          2013
                                     ----                                 ----                                  ----          ----

                                                 (in thousands, except share and per share data)

    NET INCOME ATTRIBUTABLE TO
     COMMON STOCKHOLDERS AS
     REPORTED (1)                             $2,016                                           $51,836                        $51  $47,250

    SPECIAL ITEMS:

    Losses (gains) related to
     the change in mark to
     market value for
     outstanding commodity
     derivatives contracts          5,418                              (7,485)                                8,573         2,152

    Non-recurring general and
     administrative costs
     related to acquisition of
     assets                             -                               1,418                                    30         1,418

    Non-recurring general and
     administrative costs
     related to Parent
     migration                         13                                  227                                   218           269

    Litigation settlement
     expense                            -                                   -                                    -        1,000

    Gain on acquisition of
     assets at fair value               -                            (43,712)                                    -     (43,712)

    Write off of fees
     associated with old
     amended revolving credit
     facility                           -                               1,154                                     -        1,154

    Foreign transaction loss            4                                   11                                     6            12

    ADJUSTED NET INCOME
     ATTRIBUTABLE TO COMMON
     STOCKHOLDERS                             $7,451                                            $3,449                     $8,878   $9,543
                                              ======                                            ======                     ======   ======

    ADJUSTED NET INCOME PER
     SHARE OF COMMON STOCK
     ATTRIBUTABLE TO COMMON
     STOCKHOLDERS:

    Basic                                      $0.13                                             $0.06                      $0.15    $0.15
                                               =====                                             =====                      =====    =====

    Diluted                                    $0.12                                             $0.05                      $0.14    $0.15
                                               =====                                             =====                      =====    =====

    WEIGHTED AVERAGE SHARES OF
     COMMON STOCK OUTSTANDING:

    Basic                      58,702,982                           62,398,472                            58,462,124    63,089,987

    Diluted                    61,922,874                           63,813,423                            61,674,267    63,699,525
    (1)              The three and six months
                     ended June 30, 2014 include
                     the benefit of an $8.6
                     million one-time
                     adjustment related to an
                     arbitration settlement.

                                                           Reconciliation of Cash Flows before Working Capital Changes

                                                                        and as Adjusted for Special Items:

                                              For the Three Months Ended                       For the Six Months Ended
                                                       June 30,                                        June 30,
                                                       --------                                        --------

                                                2014                                2013                                 2014        2013
                                                ----                                ----                                 ----        ----

                                                                           (in thousands)

    CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income (1)                                       $5,627                                          $53,970                  $7,238  $51,514

    Adjustments to reconcile net income to
     net cash provided by operating
     activities:

    Depreciation, depletion and amortization  10,280                               7,596                               22,662      12,961

    Stock-based compensation                     999                               1,143                                2,532       1,966

    Mark to market of commodity derivatives
     contracts:

    Total loss (gain) on commodity
     derivatives contracts                     8,910                             (7,036)                              15,424     (3,034)

    Cash settlements of matured commodity
     derivatives contracts, net              (3,046)                              (164)                             (6,061)      5,596

    Cash premiums paid for commodity
     derivatives contracts                      (84)                                  -                               (155)       (27)

    Amortization of deferred financing costs     758                               1,372                                1,491       1,450

    Accretion of asset retirement obligation     125                                 114                                  247         216

    Settlement of asset retirement
     obligation                                (289)                                  -                               (546)          -

    Gain on acquisition of assets at fair
     value                                         -                           (43,712)                                   -   (43,712)
                                                 ---                                                                    ---    -------

    Cash flows from operations before
     working capital changes                  23,280                              13,283                               42,832      26,930

    Litigation settlement expense                  -                                  -                                   -      1,000

    Foreign transaction loss                       4                                  11                                    6          12

    Dividends on preferred stock             (3,611)                            (2,134)                             (7,187)    (4,264)

    Non-recurring general and
     administrative costs related to
     acquisition of assets                         -                              1,418                                   30       1,418

    Non-recurring general and
     administrative costs related to Parent
     migration                                    13                                 227                                  218         269
                                                 ---                                 ---                                  ---         ---

    Adjusted cash flows from operations                 $19,686                                          $12,805                 $35,899  $25,365
                                                        =======                                          =======                 =======  =======
    (1)              The three and six months
                     ended June 30, 2014 include
                     the benefit of an $8.6
                     million one-time
                     adjustment related to an
                     arbitration settlement.

                                    Reconciliation of Net Income to Adjusted Earnings Before Interest, Income Taxes, Depreciation,

                                                            Depletion and Amortization ("Adjusted EBITDA"):

                                    For the Three Months Ended                       For the Six Months Ended
                                             June 30,                                        June 30,
                                             --------                                        --------

                                      2014                                2013                                 2014                       2013
                                      ----                                ----                                 ----                       ----

                                                 (in thousands, except share and per share data)

    NET INCOME ATTRIBUTABLE TO
     COMMON STOCKHOLDERS AS
     REPORTED (1)                              $2,016                                          $51,836                                    $51  $47,250

    Interest expense                 6,912                               3,545                               13,803                      4,154

    Depreciation, depletion and
     amortization                   10,280                               7,596                               22,662                     12,961
                                    ------                               -----                               ------                     ------

    EBITDA                          19,208                              62,977                               36,516                     64,365

    Dividend expense                 3,611                               2,134                                7,187                      4,264

    Accretion of asset retirement
     obligation                        125                                 114                                  247                        216

    Gain on acquisition of assets
     at fair value                       -                           (43,712)                                   -                  (43,712)

    Losses (gains) related to the
     change in mark to market value
     for outstanding commodity
     derivatives contracts           5,418                             (7,485)                               8,573                      2,152

    Non-cash stock compensation
     expense                           999                               1,143                                2,532                      1,966

    Litigation settlement expense        -                                  -                                   -                     1,000

    Foreign transaction loss             4                                  11                                    6                         12

    Investment income and other        (4)                                (5)                                (11)                       (8)

    Non-recurring general and
     administrative costs related
     to acquisition of assets            -                              1,418                                   30                      1,418

    Non-recurring general and
     administrative costs related
     to Parent migration                13                                 227                                  218                        269

    Adjusted EBITDA                           $29,374                                          $16,822                                $55,298  $31,942
                                              =======                                          =======                                =======  =======
    (1)               The three and six months
                      ended June 30, 2014 include
                      the benefit of an $8.6
                      million one-time
                      adjustment related to an
                      arbitration settlement.

SOURCE Gastar Exploration Inc.


Source: PR Newswire



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