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Gastar to Drill Utica, Expand Hunton Limestone Operations in April

Gastar Exploration Ltd. executives said the company plans to spud its first test wells targeting the Utica Shale in West Virginia and the Hunton Limestone in Oklahoma next month, and will place more than a dozen Marcellus Shale wells into production during the rest of the year.

In a statement outlining Gastar's 4Q2013 and full-year 2013 results, CEO J. Russell Porter said the Houston-based company was "highly encouraged" by production results from other operators with nearby acreage. He said those results indicate the Utica Shale underlies all of its acreage in West Virginia's Marshall and Wetzel counties, and that the company has an estimated 114 gross drilling locations to target the play.

"Although this is in the dry gas window of the Utica, the high production rates of nearby operators indicate that each well could contain significant recoverable reserves, providing very attractive individual well returns as well as the ability to meaningfully increase Gastar's per share net asset value," Porter said.

He added that Gastar also plans to place at least 13 wells targeting the Marcellus Shale into production during the remainder of 2014.

"We are also in the final stages of completing acreage trades with other operators in the area that, when completed, will substantially increase our future Marcellus and Utica drilling locations," Porter said. "We have identified 73 incremental drilling locations, including locations related to pending acreage trades, in our liquids-rich gas area, and we now have a total of 210 Marcellus Shale drilling locations identified for future development in Marshall and Wetzel counties."

Gastar had 57 gross (27 net) operated wells in Marshall County during 4Q2013, but did not complete any additional wells during the period.

"In 2014, to develop the Marcellus Shale, we are operating a smaller rig to drill the vertical top section of wells and a larger rig to drill the horizontal lateral sections," Gastar said. "In late February, we completed drilling the top-hole sections of nine wells on the Armstrong pad and expect to drill the lateral, complete and begin producing five of those wells in 3Q2014. Top-hole drilling recently commenced at the Hansen pad, where five wells are planned and are expected to be placed on production in 4Q2014.

"We anticipate our next three Marcellus Shale wells will be placed on production late in 2Q2014 from our Goudy pad in Marshall County. We expect total gross operated wells on production in the area to be approximately 71 by year-end 2014."

Last September, Gastar acquired a 98.3% working interest (80.5% net revenue interest) on 24,000 acres of the West Edmond Hunton Lime Unit (WEHLU), located across Oklahoma's Canadian, Kingfisher, Logan and Oklahoma counties (see Shale Daily, Sept. 9, 2013). The acquisition, valued at $187.5 million, boosted Gastar’s position in the Hunton to 126,000 net acres.

"We made progress during the fourth quarter toward de-risking and delineating the oil potential of our operated Hunton acreage in Oklahoma," Porter said, adding that Gastar's first three operated wells were spread out across its holdings and had all encountered oil in the Lower Hunton formation. "We believe the Lower Hunton will be a statistical play and should provide average results consistent with our published type curves."

Porter said the first well drilled on its newly-acquired WEHLU acreage will be spud in April and will target the Lower Hunton. A second well in the WEHLU will immediately follow, targeting the Upper Hunton. He added that on its non-operated acreage in the Hunton, an undisclosed operator is continuing to run two rigs in the play, "which should drive steady increases in our crude oil production.

"We also believe that a meaningful amount of our acreage will be prospective for development of the Woodford Shale and Meramec Mississippian formations. We have not yet attempted to catalog the potential related to these additional development targets.”

Gastar reported net production averaged 41.0 MMcfe/d from the Marcellus in 4Q2013, up 37.1% from the preceding fourth quarter (29.9 MMcfe/d). In the Midcontinent, net production averaged 14.1 MMcfe/d in 4Q2013, compared to 0.1 MMcfe/d in 4Q2012.

Full-year total production increased 46.6% between 2012 and 2013, increasing from 13,247 MMcfe to 19,417 MMcfe. Total natural gas production increased from 10,564 MMcf in 2012 to 13,366 MMcf in 2013. Oil and condensate production also rose during the same time frame (from 177,000 bbl to 515,000 bbl), as did production of natural gas liquids (from 270,000 bbl to 494,000 bbl).

Gastar reaffirmed its production guidance, ranging from 9,300 to 9,700 boe/d for 1Q2014, and 9,700 to 11,000 boe/d for full-year 2014. The company plans to spend $68 million on capital expenditures (capex) in the Appalachian Basin in 2014, and $25.1 million on capex in the Midcontinent.

Last fall, Gastar sold its properties in East Texas to Cubic Energy Inc. in a deal valued at $43.9 million (see Shale Daily, Oct. 2, 2013; April 23, 2013).

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