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Gastar's Midcontinent Progress Making Up For Setbacks in Appalachia

Gastar Exploration Inc. said Monday that it's once again facing production constraints in the Marcellus Shale after its third-party midstream operator experienced another pipeline rupture in West Virginia last month, but said the problem would be offset by volumes from recently completed wells in the Midcontinent.

The news came in an operational update from the company. Although clearly a setback -- as Gastar's acreage in West Virginia  accounts for about two-thirds of its average daily production -- financial analysts said progress the company reported on some of its wells in the Midcontinent is a positive that can't be overlooked.

Earlier this year, Gastar said it was preparing to test both the Utica Shale in West Virginia and what it refers to as the Hunton Oil Play in Oklahoma (see Shale Daily, May 9). The latter, which are classified as the Mississippian Lime/Woodford formations, is where other companies such as Devon Energy Corp., Newfield Exploration Co. and privately-owned Longfellow Energy LP are attracting attention as they try to redefine the conventional oil-bearing formations (see Shale Daily, April 11a).

In the Hunton, Gastar said that it has a mix of 10 net operated and non-operated wells in production across Garfield and Kingfisher counties, OK. The company said production rates from some of those wells have been "generally strong," with its Lower Hunton wells at or above its type curves.

One of those, the Kodiak 1-29H, which came online in May, is significantly exceeding the company's expectations and proving to be one of the region's best unconventional wells to date, analysts said. The Kodiak had an initial production rate of 1,666 boe/d, 86% of which was crude oil, and it stabilized at a 30-day rate of 1,259 boe.

"In the areas where we have drilled a sufficient number of Lower Hunton wells, those wells are averaging production rates, on a boe basis, that are on par with our published Lower Hunton type curve," said CEO Russell Porter in a statement. "In addition, the percentage of oil on average is higher than our type curve. As we continue to ramp up our operated activities in the play, we expect to achieve similar results that on average will demonstrate the attractive returns that can be generated over our very large acreage position."

In addition to the company's Simms U-5H Utica Shale well in Marshall County, WV, which is currently being drilled with test results expected sometime in August, Topeka Capital Markets analyst Gabriele Sorbara said the new formations provide rich catalysts for the company that could help its long-term value. Gastar said increasing volumes from its Hunton play will help the company meet the high end of its 8.4-8.8 thousand boe/d second quarter guidance. The company also plans to drill its first operated Woodford Shale well this fall and expects to test the Meramec formation in Kingfisher County, OK, in the fourth quarter. 

In April, though, Gastar said it was forced to shut-in some of its wells in West Virginia after a Williams pipeline ruptured and caught fire (see Shale Daily, April 8; April 11b). On Monday,  Williams spokeswoman Helen Humphreys confirmed another one of its pipelines ruptured last month, causing a 16% reduction in Gastar’s Appalachian production over the last three weeks. 

Humphreys said a line break in Williams Ohio Valley Midstream gathering system occurred in Wetzel County, WV. The cause of the break is still under investigation. The company expects the pipeline to be operational again by Wednesday, she said.

During the second half of 2013, Gastar was forced to temporarily suspend its Marcellus capital program, citing a slower-than-expected infrastructure buildout by Williams (see Shale Daily, March 18, 2013).

The company said it will begin drilling its second Utica well in Wetzel County, WV, sometime next quarter, after the Simms U-5H well is complete. Those results are being watched closely, as other operators test the boundaries of the Utica in the wake of some prolific dry gas wells that have recently come online in southeast Ohio (see Shale Daily, March 26; May 16).

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