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Gastar Touts Meramec Test, Expands STACK/Hunton Limestone Exposure

Gastar Exploration Inc.'s first operated test in the Meramec formation within Oklahoma's stacked reservoirs appears to extend the definition of one of the most promising plays in the U.S. onshore.

The Houston-based independent said the Deep River 30-H well (100% owned) in Kingfisher County within the STACK, aka the Sooner Trend of the Anadarko Basin (mostly in) Canadian and Kingfisher counties, in late October began flowing at an initial production (IP) rate over 24 hours of 1,094 boe/d, 71% weighted to oil. The IP rate for recovering completion fluids was 1,549 barrels per day. The most recent average IP rate was 1,042 boe/d with daily recovery of 1,364 barrels of completion fluids.

"Our Deep River Meramec test well is an important success and moves the productive outline of the Meramec play much further northeast than previously defined," said CEO J. Russell Porter. "It is also worth noting that the percentage of oil in our area is much higher than the production associated with acreage that has been involved in industry transactions recently completed at very high valuations.

"Plus, the robust gas production shows that our acreage has good reservoir pressure to drive high oil production volumes and increase reserve recovery. This should allow future drilling of the Meramec play to generate both positive cash flow and strong returns on our investment, even at current commodity prices."

The 5,100-foot lateral well test was drilled and completed (D&C) for $6.4 million, with 34 fracture stages and 12 million pounds of proppant. Gastar expects future wells targeting the Meramec, assuming 5,000-foot laterals, should have D&C costs of about $5.5 million. Gastar is planning a second Meramec well, the Burton 16-1H, which would be north of the Deep River well.

The producer also has completed a land swap in Oklahoma in what had been an area of mutual interest (AMI) from co-participant Husky Ventures Inc. and other parties (see Shale DailyOct. 15). A total of $42.1 million was paid to dissolve the AMI and give Gastar stakes in 10.2 net producing wells and 15,700 net acres in Kingfisher and Garfield counties. The AMI is within the STACK and the Hunton Limestone formation, where Gastar is one of the leading operators.

In return, Gastar conveyed to the sellers 11,000 net acres in Blaine and Major counties. As a part of the agreements Gastar and Husky withdrew lawsuits filed against each other regarding the AMI.

"With the completion of this acquisition of additional interests in Oklahoma, we have expanded our exposure to the STACK play as well as the Hunton and emerging Osage and Oswego plays," Porter said. "We estimate that, based on 320-acre spacing, we now have approximately 194 net locations on approximately 62,200 net acres that are prospective for the Meramec/Osage formation within the Mississippian Lime, an increase of 49 net locations.

"Now that our Midcontinent AMI is dissolved, we control all future drilling plans on that acreage and are taking over operatorship of a majority of the wells previously drilled within the AMI."

All eyes now shift to Gastar's potential Appalachian sale to unlock cash and liquidity that would help to develop the Oklahoma reservoirs, Wunderlich Securities Inc. analyst Jason Wangler said.

"The company should have received bids last month on its Appalachian assets that were put on the market recently," he said. Gas prices "remain difficult and the Appalachian region has basis differential issues as well," but Gastar should be able to receive a "meaningful amount for these assets, which would allow it to repay its credit facility and possibly also add cash for future capital expenditure plans."

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