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Gastar Now STACK-Focused Pure Play

Houston-based Gastar Exploration Inc. has become a pure-play Midcontinent producer focused on Oklahoma's stacked reservoirs after completing the sale of its Appalachian portfolio.

The company on Friday completed the sale of most of its producing assets, proved reserves and undeveloped acreage in Appalachia to Tug Hill Inc. for $80 million (see Shale DailyFeb. 22). The transaction will allow Gastar to prioritize this year's budget to Oklahoma's Sooner Trend in the Anadarko Basin, which generally is in Canadian and Kingfisher counties, aka the STACK.

"The closing of this transaction allows us to reduce our debt and exclusively focus our operations on the Midcontinent STACK play, one of the most economic plays in the U.S.," CEO Russell Porter said.

Initial flowback is expected this month from Gastar's second Meramec well in Kingfisher County, which it completed with 34 hydraulic fracture stages (see Shale DailyMarch 30). The Holiday Road 2-1H, Gastar’s second well in the Meramec formation, has a lateral length of 4,300 feet and was completed using about 12 million pounds of proppant. The first operated test well in the Meramec, Deep River 30-1H, produced for the first 90 days at a gross average sales rate of 713 boe/d, 61% weighted to oil.

In connection with the sale to Tug Hill, Gastar's revolving credit facility automatically was reduced to $100 million, as required by its credit agreement. Proceeds from the sale are to be used to reduce outstanding borrowings "to achieve compliance with the reduction of the borrowing base." Gastar suspended its dividend in March and put about 25% of its Oklahoma assets, an estimated 26,000 net acres, on the market to maintain liquidity (see Shale DailyMarch 14).

Wunderlich Securities Inc. analyst Jason Wangler on Friday offered two sales comparisons to determine how well Gastar's planned Oklahoma sale might perform. Last year Devon Energy Corp. paid about $21,000/acre net for Felix Energy "that really put the STACK play on the map" (see Shale DailyDec. 7, 2015). If Gastar's Oklahoma sale were to do as well as the Felix sale, it could fetch about $550 million.

Conversely, late last month Vanguard Natural Resources LLC sold its Oklahoma assets to Titanium Exploration Partners LLC for an estimated $280 million (see Shale DailyMarch 31). After backing out production, the assets sold for about $4,500/acre net, Wangler said.

"We expect Gastar to be somewhere in the middle and possibly raise $200 million," he said. "While the range of the high end and low end of recent transactions forecasting Gastar's marketed assets running from $120 million to $550 million provides a wide spectrum of outcomes, we believe that it also shows positive trends in nearly all prices as it would open up ample liquidity."

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