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Gastar 2012 Capex Will Be Marcellus-Heavy

Gastar Exploration Ltd. will devote $100.5 million of its $134.2 million 2012 capital budget to drilling and completion costs, with 89% of that amount ($88.9 million) to be spent on activities in the liquids-rich window of the Marcellus Shale, the company said Tuesday.

In addition to gas exploration in the Marcellus in West Virginia and central and southwestern Pennsylvania, Gastar is active in the deep Bossier gas play in East Texas and conducts limited coalbed methane development activities within the Powder River Basin of Wyoming and Montana.

The Houston-based independent expects to spend $103 million for drilling, completion, infrastructure, lease acquisition and seismic costs in Appalachia this year, with another $6.5 million budgeted for East Texas. Gastar allocated another $19.8 million for a new Midcontinent oil-focused venture and $4.9 million for capitalized interest and other costs.

First quarter production is expected to be 26-28 MMcfe/d, Gastar said. A continued focus on condensate and oil and natural gas liquids (NGL) rich projects should result in Gastar's 1Q2012 production profile containing 12-16% liquids.

Gastar achieved its goal of increasing Marcellus Shale production in northern West Virginia last year and has set the same goal for 2012 (see Shale Daily, Dec. 20, 2011). The company holds nearly 80,000 net acres in northern West Virginia and southwestern Pennsylvania, primarily in the wet-gas corridor of the play.

Gastar plans to drill and complete 20 gross (10 net) operated new Marcellus horizontal wells in Marshall County, WV, along with the completion of 10 gross (4.5 net) additional operated Marcellus horizontal wells that were drilled and awaiting completion as of Dec. 31, 2011. Gastar exited 2011 with 9 gross (four net) operated Marcellus wells completed.

The company has acquired an initial lease position in a new oil play located in the Midcontinent region and plans to build the position, along with its partner, to approximately 25,000 gross (12,500 net to Gastar) acres this year. Drilling is scheduled to begin in the second half of 2012 with plans to drill and complete three gross (1.5 net) initial horizontal wells in the area this year.

Gastar reported year-end 2011 proved natural gas, oil and condensate and NGL reserves of 119.7 Bcfe (77% of it attributable to natural gas, 9.6% oil and condensate, and 13.8% NGLs), compared with 2010 proved reserves of 50.3 Bcfe.

"This 138% increase in our proved reserves in 2011, and the 223% increase in the [present value discounted at 10%] of those reserves, reflects the significant success we achieved developing our Marcellus acreage," said CEO J. Russell Porter. "It also reflects the benefit of the $40 million drilling carry we utilized during the year in the Marcellus Shale and the benefit of strong oil and liquids prices.

"By concentrating on developing our liquids-rich acreage we are raising the percentage of oil, condensate and NGLs in our production profile. As we test and potentially develop our new oil play in the Midcontinent, we may have an opportunity to further increase the liquids content of our reserves and production even more substantially."

Proved undeveloped reserves at year-end 2011 represented approximately 34% of total proved reserves compared to approximately 17% at year-end 2010. Proved undeveloped reserves at year-end 2011 were comprised of 41.2 Bcfe of Appalachia Basin reserves, the company said.

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