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Gastar Selling Appalachian Assets, Building Midcontinent Position

Looking to conclude a process that began roughly two years ago, Gastar Exploration Inc. said late Wednesday it is marketing its assets in the Appalachian Basin, where widening differentials have forced it to slow spending in recent years in favor of oilier assets in the Midcontinent.

The company has 19,600 net acres in the Marcellus and Utica shales in Marshall and Wetzel counties, WV. It has hired energy investment bank Tudor, Pickering, Holt & Co. to market those assets, which have generally performed well for Gastar. Last year, the company tested its first deep dry Utica natural gas well, the Simms U-5H, at a 48-hour rate of 29.4 MMcf/d on a 4,447-foot lateral (see Shale Daily, July 1Sept. 8, 2014).

If the assets are sold, the move would transition Gastar to a Midcontinent pure-play, with operations confined to Oklahoma, where it's been increasingly focused on its oil-rich assets in the Hunton Limestone and STACK play, which holds potential for the Woodford and Meramec shales, along with the Oswego and Osage formations (see Shale DailySept. 17, 2014). Other operators also refer to the area as the SCOOP or CNOW and have seen success from nearby wells (see Shale DailyApril 11, 2014).

Gastar's Marcellus and Utica wells accounted for 55% of production in 2Q2015, producing 46 MMcfe/d, while its Midcontinent assets produced 6,200 boe/d during the period. But the bulk of Gastar's PV-10 reserves (86%) are located in the Midcontinent. The potential sale of the company's Appalachian assets comes after Gastar idled its operations in the basin earlier this year, choosing instead to focus on the Midcontinent, where it allocated 72% of its capital budget this year (see Shale DailyFeb. 3).

The company has been working to consolidate its interests in Oklahoma, building off two key deals in 2013, when it acquired a 98.3% working interest across 24,000 acres in the state's Canadian, Kingfisher, Logan and Oklahoma counties (see Shale DailySept. 9, 2013). That deal was preceded by another in which it acquired the drilling rights in 157,000 net acres in the same region from its former part-owner Chesapeake Energy Corp. (see Shale DailyApril 2, 2013)

Earlier this year, the company also sold 19,000 net noncore acres in Kingfisher County to a private company (see Shale DailyMay 8). Those assets were mostly gas-producing.

As it continues to sharpen its focus on the Midcontinent, Gastar also said Wednesday that it had acquired the working interests and operations of 103 gross producing wells in the STACK and Hunton Limestone from its privately-owned joint venture (JV) partner Husky Ventures Inc. The company said it would fund the $43.3 million transaction with borrowings under its credit facility. The deal includes the acquisition of 15,700 net acres in Kingfisher and Garfield counties, OK, of which 42% is held by production.

The acquisition is expected to close by late November and have a retroactive effective date of July 1, 2015. After closing, Gastar said its JV with Husky would be dissolved. Topeka Capital Markets analyst Gabriele Sorbara said the decision to end the partnership was driven partly by disagreements between the two companies over completion methods. The acquisition would boost Gastar's Hunton Limestone position to 110,400 net acres. In the STACK play, Gastar would hold 62,300 net acres in the Meramec and 48,900 net acres in the Woodford after the deal.

Current production from the JV wells being acquired is 625 boe/d, of which 46% is oil, 28% is natural gas and 26% is natural gas liquids. Closing of the deal is also subject to Gastar transferring 11,000 net noncore acres in Blaine and Major counties, OK, to Husky and others.

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