Days before it expects to close on a deal to sell all of its assets in the Appalachian Basin and become a pure play operator in the stacked Midcontinent, Gastar Exploration Inc. said it plans to sell about one quarter of its assets in Oklahoma and will suspend its monthly cash dividend in order to maintain liquidity.
The Houston-based independent also announced changes to its revolving credit facility, reducing it to $100 million after the sale of its Appalachian Basin assets closes.
During an earnings call Friday to discuss 4Q2015 and the full-year 2015, CEO J. Russell Porter said that beginning in April Gastar will suspend monthly cash dividend payments on its Series A and B preferred shares "until conditions allow us to reinstate them." He said the company has also started marketing approximately 26,000 net undeveloped acres of its 110,000 net acre position in Oklahoma. The acreage is on trend to the STACK (Sooner Trend Anadarko Canadian and Kingfisher) play.
"In light of today's market and the current commodity price outlook, we believe that cautiously monitoring and managing our liquidity position is of critical importance," Porter said. "We continue to work closely with our lenders to assure that we can meet our covenant requirements and have sufficient cash to successfully manage through these difficult market conditions."
Porter said the STACK assets up for sale are in Oklahoma's Canadian and Kingfisher counties, with hundreds of undrilled locations prospective for the Meramec formation, the Hunton limestone formation and the Woodford Shale, with additional upside from the Oswego and Osage formations.
"We have a formal process well underway with a high level of interest from potential bidders," Porter said. "We hope to be evaluating bids in early April with closing before the end of 2Q2016. If we’re successful, we'll use the proceeds to reduce leverage and to continue de-risking our remaining stack play position that has a substantial inventory of drilling in the Meramec, Osage, Oswego and Woodford formations."
Last month, Gastar announced it had entered into an agreement to sell all of its assets in the Marcellus and Utica shales to an affiliate of privately held investment developer Tug Hill Inc. for $80 million (see Shale Daily,Feb. 22). The deal is expected to close on or before March 31, with the proceeds going toward reducing debt under its revolving credit facility. Gastar had been looking for someone to buy its Appalachian assets since last October (see Shale Daily, Oct. 15, 2015).
CFO Michael Gerlich said the company signed an amendment to its revolving credit agreement last Thursday, reducing its borrowing base -- before the sale of its Appalachian Basin assets -- to $180 million, down from $200 million. Upon closing, the borrowing base will be further reduced to $100 million. Gerlich said the company's next borrowing base redetermination is scheduled for August.
Gastar reiterated its pro forma production guidance range of 6,400-6,900 boe/d (68-75% liquids) for 1Q2016, which excludes the Appalachian Basin. With those assets included, production is expected to range from 13,000-14,100 boe/d (53-58% liquids). "We are not issuing full year guidance due to the uncertainty of our 2016 capital program and our desire to continue to react to commodity prices and capital availability," the company said Thursday.
Porter added that Gastar's preliminary capital budget for 2016 is $37 million. "Later in the year, we will re-evaluate the market conditions and liquidity to determine changes to our drilling budget," he said.
Gastar reported average daily production of 14,000 boe/d for 4Q2015, a 19.7% increase from the preceding fourth quarter (11,700 boe/d). For the full-year 2015, average daily production was 13,500 boe/d, a 32.4% increase from 2014 (10,200 boe/d). Crude oil and condensate production rose 14.7% between the two fourth quarters (from 3,400 to 3,900 b/d) and 44.4% between 2014 and 2015 (from 2,700 to 3,900 b/d). Natural gas production also climbed 12.5% between the two fourth quarters (from 32,800 to 36,900 MMcf/d) and 18.6% between 2014 and 2015 (31,800 to 37,700 MMcf/d), as did production of natural gas liquids (NGLs), which increased 39.3% between 4Q2014 and 4Q2015 (from 2,800 to 3,900 b/d) and 50% between 2014 and 2015 (from 2,200 to 3,300 b/d).
Net daily production in the Midcontinent rose 10.7% between 4Q2014 (5,600 boe/d) and 4Q2015 (6,200 boe/d), and 36.4% between the full-year 2014 (4,400 boe/d) and 2015 (6,000 boe/d). Gastar said about 54% of its 4Q2015 production in the Midcontinent was from oil, with the 26% natural gas and 20% NGLs. Elsewhere, net daily production in the Marcellus Shale rose 35.3% between 4Q2014 and 4Q2015 (from 5,100 to 6,900 boe/d) and 20% between the full-year 2014 (5,500 boe/d) and 2015 (6,600 boe/d). In the Utica Shale, net daily production fell 10% between 4Q2014 (1,000 boe/d) and 4Q2015 (900 boe/d), but it more than tripled between 2014 (300 boe/d) and 2015 (1,000 boe/d).
Gastar completed six gross (5.7 net) operated wells during 4Q2015. Of those, one gross (1.0 net) -- the O'Donnell 5-1H, in which the company has a 98.3% working interest (WI) -- targeted the Upper Hunton limestone formation. Meanwhile, three gross (2.9 net) wells -- Davis 9-4H, Arcadia Farms 15-1CH and O'Donnell 5-2CH (all 98.3% WI) -- targeted the Lower Hunton; one gross (0.8 net) well, Unruh 1-34H (75.9% WI) was drilled in Gastar's original area of mutual interest in the Hunton; and one gross (1.0 net) operated well, Deep River 30-1H (100% WI), targeted the Meramec formation.
Last January, Gastar said it planned to spud a second Meramec well after encouraging initial results from the Deep River well (see Shale Daily, Jan. 12). The company said that after idling its single drilling rig for much of 4Q2015, it began to drill the second Meramec well, Holiday Road 2-1H, in Kingfisher County, OK, on Feb. 10. Completion of the Holiday Road well is expected by mid-March. The drilling rig has since been released to preserve liquidity.
Gastar reported a net loss of $161.1 million (minus $20.7/diluted share) for 4Q2015, compared to net income of $26.7 million (34 cents/share) for 4Q2014. For the full-year 2015, Gastar reported a net loss of $474 million (minus $6.11/share), compared to net income of $36.5 million (55 cents/share) in 2014.
Excluding several charges -- specifically, a $144.8 million impairment charge; a $2.9 million loss resulting from the mark-to-market of outstanding hedge positions; $590,000 of non-recurring costs related to a Midcontinent acquisition and $310,000 in divested property severance costs -- Gastar reported an adjusted net loss of $12.6 million (minus 16 cents/share) in 4Q2015, compared to adjusted net income of $1.8 million (two cents/share) in 4Q2014, excluding the impact of a $24.9 million gain resulting from the mark-to-market of outstanding hedge positions. For the full-year 2015, the company reported an adjusted net loss of $43.8 million (minus 57 cents/share), compared to adjusted net income of $12.9 million (19 cents/share) in 2014.
On Thursday, Gastar declared monthly cash dividends on its Series A and B preferred stock. The payments, to be made at the close of business on March 21, will equate to about 18 cents/share based on a $25/share liquidation preference of the Series A stock, and about 22.4 cents/share on a $25/share liquidation preference for Series B. The aforementioned changes to the company's revolving credit facility will prohibit further cash dividend payments, but dividends will continue to accumulate regardless of whether any such dividends are declared.