Gastar Exploration Reports Third Quarter 2010 Results
HOUSTON, Nov. 4, 2010 /PRNewswire-FirstCall/ — Gastar Exploration Ltd. (NYSE Amex: GST) today reported financial and operating results for the three and nine months ended September 30, 2010.
Net loss for the third quarter of 2010 was $16.4 million, or $0.33 per share. Excluding a previously announced litigation expense of $21.2 million, an unrealized hedging gain of $5.5 million and certain other small items, the adjusted net loss was $776,000, or $0.02 per share. This compares to reported net income of $108.5 million, or $2.21 per diluted share, for the third quarter of 2009. Excluding the impact of several special items — including a $193.4 million gain on the sale of the Company’s Australian assets, $65.8 million of income tax expense related to the sale of the Australian assets, a foreign transaction gain of $3.8 million, early debt extinguishment expense of $15.9 million, a $3.3 million unrealized natural gas hedging loss and a $495,000 non-cash warrant derivative loss, net loss for the third quarter of 2009 was $3.2 million, or $0.07 per share.
Net cash flow provided by operations for the third quarter of 2010 was $3.4 million compared to net cash used by operations of $2.7 million in the same period last year. Net cash flow from operations was $7.8 million and $12.7 million for the nine months ended September 30, 2010 and 2009, respectively. Our cash flow from operations before working capital changes for the third quarter of 2010 was $2.6 million and $8.1 million for the nine months ended September 30, 2010.
Natural gas and oil revenues were $8.7 million in the third quarter, up from $7.6 million a year ago. The increase in revenues was the result of an 18% increase in commodity prices partially offset by a 3% decrease in volumes. Average daily production was 22.6 million cubic feet of natural gas equivalent (MMcfe) for the third quarter of 2010, compared to 23.3 MMcfe per day for the same period in 2009.
During the third quarter, approximately 79% of our natural gas production was hedged. The realized effect of hedging on natural gas sales was an increase of $1.5 million in revenues and resulted in an increase in total price received from $3.39 per thousand cubic feet (Mcf) to $4.09 per Mcf. The realized hedge impact includes a $159,000 gain from the amortization of prepaid put purchase and call sale premiums. Excluding the non-cash amortization, the realized effect of hedging was a gain of $1.3 million, which is composed of $2.1 million of NYMEX hedge gains offset by $275,000 of regional basis losses and payment of deferred put premiums of $484,000. For the remainder of 2010, we have costless collar hedges for approximately 8,600 million Btu (MMBtu) per day with a weighted average floor of $6.31, short put of $4.43 and a ceiling of $7.58. In addition, we have put spread hedges for approximately 9,400 MMBtu per day with a weighted average floor of $5.93 and a short put of $4.19.
Lease operating expense (LOE) was $1.5 million in the third quarter of 2010, down from $1.8 million a year ago. LOE per Mcfe of production decreased to $0.74, compared to $0.82 per Mcfe during the third quarter of 2009. The decrease per Mcfe was primarily due to lower ad valorem taxes and lease operating expense partially offset by higher workover costs and lower production volumes.
Operations Review and Update
In East Texas, third quarter net production from the Hilltop area averaged 20.1 MMcfe per day, up from 13.6 MMcfe per day in the second quarter of 2010. The increase in volumes was due to the return of the Belin #1 well to production, following successful operational repairs late in the second quarter, and bringing a new well, the Donelson #4, on production in late June. Additionally, production during the third quarter was slightly higher than expected due to the Streater #1, a middle Bossier well, coming on production on September 20 versus early October as originally expected. The well was completed in one zone and is currently producing approximately 7.6 MMcf per day. Gastar has a 100% before payout working interest (76% before payout net revenue interest) in the Streater #1 well.
Also during the third quarter, we began drilling our first Eagle Ford test well, the Wildman #7H and are currently waiting on service company availability to fracture stimulate the well, which is expected to occur in late December. A rig is currently moving to drill our second well to test the Glen Rose formation, the Wildman #8H, which should spud later this month. In late November, we expect to begin drilling the Belin #2 well, a lower Bossier well located adjacent to the Belin #1 well, which if successful could prove up a new fault block.
Capital expenditures for the third quarter in East Texas were $11.2 million, and we expect to spend approximately $10.4 million in East Texas during the fourth quarter on capital projects.
In Appalachia during the third quarter, we began drilling our first operated horizontal Marcellus Shale test, the Wengerd #1 in Marshall County, West Virginia, which is the initial activity within our new joint venture with an affiliate of Atinum Partners Co., Ltd. Under the terms of the agreement, Atinum will pay 87.5% of the cost of the well for a 50% interest. We expect to have the well fraced by late first quarter 2011, and if successful, it would go on production shortly thereafter.
Atinum and Gastar are also participating in a seven well program to test the Marcellus Shale on acreage pooled with an offset operator in Butler County, Pennsylvania. Atinum and Gastar collectively own 38.4% of the seven wells, and Atinum will pay 87.5% of the combined net cost. The vertical sections of the wells have been drilled from one pad, with a larger rig scheduled to drill horizontal sections in all seven wells early next year. Completion activity is expected to begin in the second quarter of 2011, with the wells scheduled to be fraced and put on production starting mid-year.
Capital expenditures for the third quarter in Appalachia were $6.0 million, and we expect to spend approximately $1.5 million in Appalachia during the fourth quarter on capital projects.
J. Russell Porter, Gastar’s President and CEO, stated, “With the closing of our Atinum joint venture, we are dramatically stepping up our development activity in our Appalachia acreage and expect to have an interest in at least eight wells producing from the Marcellus Shale by mid-2011. Additionally, we have an even more active drilling program planned for 2011, with at least another dozen operated horizontal wells planned. Our focus will be to initially target wells near infrastructure and in areas that are expected to have higher liquids content. With over half of our total Marcellus Shale acreage expected to generate production with meaningful liquids content, we believe this strategy will enhance our returns if natural gas prices remain low.
“Likewise in East Texas, we are focusing our capital budget toward testing the potential for oil production from the Glen Rose and Eagle Ford formations. Currently our plan is to determine the most effective method for drilling and completing wells in these target zones. Other than the Belin #2 well, which is being drilled to hold an expiring lease, and the Belin #3 after that, our plans in East Texas are dependent on natural gas prices and results of our Eagle Ford and Glen Rose tests, with the expectation that successful initial tests will create further opportunity.”
Liquidity and Capital Budget
At September 30, 2010, the Company had cash and cash equivalents of $6.9 million and a net working capital deficit of approximately $16.7 million, including $19.8 million of the litigation settlement accrual. On November 1 we closed the joint venture transaction with Atinum and received $30.0 million in cash which was utilized to pay down the $24.0 million outstanding as of September 30 on our revolving credit facility, giving us cash and cash equivalents as of November 4 of approximately $7.3 million. Planned capital expenditures for our properties for the remainder of 2010 are projected to be approximately $12.8 million, consisting of $10.4 million in East Texas, $1.5 million in Appalachia, $200,000 in the Powder River Basin and an additional $700,000 for capitalized interest and other costs. We plan on funding this capital activity through our existing cash balances, internally generated cash flows from operating activities and availability under our revolving credit facility.
Our borrowing base was $40.0 million at September 30, but effective October 1 was increased to $47.5 million primarily in connection with the Belin #1 well returning to production from all zones. The next scheduled borrowing base redetermination is May 2011.
Gastar Exploration Conference Call
Gastar Exploration’s management team will hold a conference call tomorrow on November 5th at 10:00 a.m. Eastern Time (9:00 a.m. Central Time), to discuss these results. To participate in the call, dial 480-248-5085 at least 10 minutes early and ask for the Gastar Exploration conference call. A replay will be available approximately two hours after the call ends and will be accessible through November 12, 2010. To access the replay, dial (303) 590-3030 and enter the pass code 4378981#.
The call will also be webcast live over the Internet at http://www.gastar.com/. To listen to the live call on the Web, please visit Gastar’s web site at least 10 minutes early to register and download any necessary audio software. An archive will be available shortly after the call. For more information, please contact Donna Washburn at DRG&L at (713) 529-6600 or e-mail dmw@drg-l.com.
About Gastar Exploration
Gastar Exploration Ltd. is an independent company engaged in the exploration, development and production of natural gas and oil in the United States. Our principal business activities include the identification, acquisition, and subsequent exploration and development of natural gas and oil properties with an emphasis on prospective deep structures identified through seismic and other analytical techniques as well as unconventional natural gas reserves, such as shale resource plays. We are pursuing natural gas exploration in the deep Bossier gas play in the Hilltop area in East Texas and the Marcellus Shale in West Virginia and central and southwestern Pennsylvania. We also conduct coal bed methane development activities within the Powder River Basin of Wyoming and Montana. For more information, visit our web site at www.gastar.com.
Safe Harbor Statement and Disclaimer
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 risk 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; risks relating to the absence or delay in receipt of government approvals or third party consents; 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. 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.
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.
- Financial Tables Follow -
Michael A. Gerlich, Chief Financial Officer
713-739-1800 / mgerlich@gastar.com
Investor Relations Counsel:
Lisa Elliott / Anne Pearson
DRG&L: 713-529-6600
lelliott@drg-l.com / apearson@drg-l.com
GASTAR EXPLORATION LTD. AND
SUBSIDIARIES (Unaudited)
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three
Months Ended
September 30,
-------------
2010 2009
---- ----
(in thousands, except share and per
share data)
REVENUES:
Natural gas and oil revenues $8,657 $7,553
Unrealized natural gas hedge
gain (loss) 5,487 (3,290)
----- ------
Total revenues 14,144 4,263
EXPENSES:
Production taxes 84 76
Lease operating expenses 1,549 1,759
Transportation, treating and
gathering 1,165 172
Depreciation, depletion and
amortization 2,673 2,954
Impairment of natural gas and
oil properties - -
Accretion of asset retirement
obligation 101 90
General and administrative
expense 3,842 5,156
Litigation settlement expense 21,150 -
---
Total expenses 30,564 10,207
------ ------
LOSS FROM OPERATIONS (16,420) (5,944)
OTHER INCOME (EXPENSE):
Interest expense (22) (1,031)
Early extinguishment of debt - (15,902)
Investment income and other 3 499
Gain on sale of assets - 193,376
Unrealized warrant derivative
gain (loss) 2 (495)
Foreign transaction gain 14 3,765
--- -----
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (16,423) 174,268
Provision for income tax
expense (benefit) (12) 65,776
--- ------
NET INCOME (LOSS) $(16,411) $108,492
======== ========
NET INCOME (LOSS) PER SHARE:
Basic $(0.33) $2.21
====== =====
Diluted $(0.33) $2.21
====== =====
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 49,148,207 48,990,509
Diluted 49,148,207 49,107,492
GASTAR EXPLORATION LTD. AND
SUBSIDIARIES (Unaudited)
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Nine Months
Ended
September 30,
-------------
2010 2009
---- ----
(in thousands, except share and per
share data)
REVENUES:
Natural gas and oil revenues $22,152 $32,976
Unrealized natural gas hedge
gain (loss) 13,893 (7,912)
------ ------
Total revenues 36,045 25,064
EXPENSES:
Production taxes 300 325
Lease operating expenses 5,206 5,085
Transportation, treating and
gathering 3,508 990
Depreciation, depletion and
amortization 6,068 14,314
Impairment of natural gas and
oil properties - 68,729
Accretion of asset retirement
obligation 292 265
General and administrative
expense 11,618 11,601
Litigation settlement expense 21,150 -
------ ---
Total expenses 48,142 101,309
------ -------
LOSS FROM OPERATIONS (12,097) (76,245)
OTHER INCOME (EXPENSE):
Interest expense (120) (3,330)
Early extinguishment of debt - (15,902)
Investment income and other 1,343 522
Gain on sale of assets - 193,376
Unrealized warrant derivative
gain (loss) 205 (495)
Foreign transaction gain 349 3,762
--- -----
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (10,320) 101,688
Provision for income tax
expense (benefit) (804) 65,776
---- ------
NET INCOME (LOSS) $(9,516) $35,912
======= =======
NET INCOME (LOSS) PER SHARE:
Basic $(0.19) $0.80
====== =====
Diluted $(0.19) $0.79
====== =====
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 49,063,253 45,126,907
Diluted 49,063,253 45,243,890
GASTAR EXPLORATION LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September December
30, 31,
2010 2009
---- ----
(Unaudited)
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $6,937 $21,866
Term deposit - 69,662
Accounts receivable, net of
allowance for doubtful accounts
of $577 and $609, respectively 2,954 5,336
Receivable from unproved property
sale - 19,412
Commodity derivative contracts 12,233 4,870
Prepaid expenses 269 669
Total current assets 22,393 121,815
------ -------
PROPERTY, PLANT AND EQUIPMENT:
Natural gas and oil properties, full cost
method of accounting:
Unproved properties, excluded from
amortization 151,793 132,720
Proved properties 338,954 313,100
------- -------
Total natural gas and oil
properties 490,747 445,820
Furniture and equipment 1,032 867
----- ---
Total property, plant and
equipment 491,779 446,687
Accumulated depreciation,
depletion and amortization (290,094) (284,026)
-------- --------
Total property, plant and
equipment, net 201,685 162,661
OTHER ASSETS:
Restricted cash 50 50
Commodity derivative contracts 11,567 10,698
Deferred charges, net 567 764
Drilling advances and other assets 100 250
--- ---
Total other assets 12,284 11,762
TOTAL ASSETS $236,362 $296,238
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,127 $8,291
Revenue payable 4,556 4,621
Accrued interest 167 130
Accrued drilling and operating
costs 3,540 736
Commodity derivative contracts 3,263 3,678
Commodity derivative premium
payable 3,024 1,190
Accrued litigation settlement
liability 19,750 -
Short-term loan - 17,000
Accrued taxes payable - 75,887
Other accrued liabilities 1,706 1,438
Total current liabilities 39,133 112,971
------ -------
LONG-TERM LIABILITIES:
Long-term debt 24,000 -
Commodity derivative contracts 2,141 4,047
Commodity derivative premium
payable 5,838 8,176
Accrued litigation settlement
liability 1,400 -
Asset retirement obligation 6,463 5,943
Warrant derivative - 205
--- ---
Total long-term liabilities 39,842 18,371
------ ------
Commitments and contingencies (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
unlimited shares authorized; no
shares issued - -
Common stock, no par value;
unlimited shares authorized;
50,378,094 and 50,028,592 shares
issued and outstanding at
September 30, 2010 and December
31, 2009, respectively 263,809 263,809
Additional paid-in capital 22,789 20,782
Accumulated deficit (129,211) (119,695)
-------- --------
Total shareholders' equity 157,387 164,896
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $236,362 $296,238
======== ========
GASTAR EXPLORATION LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended
September 30,
-------------
2010 2009
---- ----
(in thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(9,516) $35,912
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation, depletion and
amortization 6,068 14,314
Impairment of natural gas and
oil properties - 68,729
Stock-based compensation 2,352 2,767
Unrealized natural gas hedge
(gain) loss (13,893) 7,912
Realized loss (gain) on
derivative contracts 1,604 (2,605)
Amortization of deferred
financing costs and debt
discount 220 1,635
Accretion of asset retirement
obligation 292 265
Loss on early extinguishment of
debt - 7,027
Gain on sale of assets - (193,376)
Unrealized warrant derivative
(gain) loss (205) 495
Accrued litigation settlement
liability 21,150 -
Changes in operating assets and
liabilities:
Accounts receivable 2,847 5,215
Commodity derivative contracts 1,232 2,889
Prepaid expenses 400 497
Accrued taxes payable (1,420) 69,832
Accounts payable and accrued
liabilities (3,333) (8,821)
Net cash provided by operating
activities 7,798 12,687
----- ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Development and purchase of
natural gas and oil properties (43,588) (40,868)
Drilling advances - (7,122)
Proceeds from sale of natural
gas and oil properties 19,199 229,541
Purchase of furniture and
equipment (165) (15)
Purchase of term deposit (4,855) (52,374)
Net cash (used in) provided by
investing activities (29,409) 129,162
------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common
shares - 13,829
Repayment of 12 3/4 % senior
secured notes - (100,000)
Repayment of term loan - (25,000)
Repayment of revolving credit
facility - (18,875)
Repayment of convertible senior
unsecured subordinated
debentures - (10,305)
Repayment of subordinated
unsecured notes - (3,250)
Repayment of short-term loan (17,000) -
Proceeds from term loan - 25,000
Proceeds from revolving credit
facility 24,000 -
Deferred financing charges (22) (1,485)
Other (296) (298)
Net cash provided by (used in)
financing activities 6,682 (120,384)
----- --------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (14,929) 21,465
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 21,866 6,153
CASH AND CASH EQUIVALENTS, END
OF PERIOD $6,937 $27,618
====== =======
PRODUCTION AND PRICES
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------- -------------
2010 2009 2010 2009
---- ---- ---- ----
Production:
Natural gas (MMcf) 2,063 2,139 5,243 7,155
Oil (MBbl) 3 1 7 3
Total production
(MMcfe) 2,082 2,145 5,285 7,175
Total (MMcfed) 22.6 23.3 19.4 26.3
Average sales price
per unit:
Natural gas per Mcf,
excluding impact of
realized hedging
activities $3.39 $2.46 $3.74 $2.93
Natural gas per Mcf,
including impact of
realized hedging
activities 4.09 3.50 4.13 4.58
Oil per Bbl 68.47 61.97 70.59 51.29
For the Three
Months Ended
September 30,
-------------
2010 2009
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(16,411) $108,492
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 2,673 2,954
Impairment of natural gas and oil
properties - -
Stock-based compensation 713 633
Unrealized natural gas hedge (gain)
loss (5,487) 3,290
Realized loss (gain) on derivative
contracts (159) (496)
Amortization of deferred financing
costs and debt discount 63 227
Accretion of asset retirement
obligation 101 90
Loss on early extinguishment of debt - 7,027
Gain on sale of assets - (193,376)
Unrealized warrant derivative (gain)
loss (2) 495
Accrued litigation settlement liability 21,150 -
Cash flow from operations before
working capital changes (1) $2,641 $(70,664)
====== ========
For the Nine
Months Ended
September 30,
-------------
2010 2009
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(9,516) $35,912
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and amortization 6,068 14,314
Impairment of natural gas and oil
properties - 68,729
Stock-based compensation 2,352 2,767
Unrealized natural gas hedge (gain) loss (13,893) 7,912
Realized loss (gain) on derivative
contracts 1,604 (2,605)
Amortization of deferred financing costs
and debt discount 220 1,635
Accretion of asset retirement obligation 292 265
Loss on early extinguishment of debt - 7,027
Gain on sale of assets - (193,376)
Unrealized warrant derivative (gain)
loss (205) 495
Accrued litigation settlement liability 21,150 -
Cash flow from operations before working
capital changes (1) $8,072 $(56,925)
====== ========
SOURCE Gastar Exploration Ltd.