Strong well results in Oklahoma’s STACK, aka the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, helped lift Chaparral Energy Inc.’s production by 44% year/year (y/y) in the second quarter and prompted the pure-player to raise its capital spend and production guidance for the year.
Meanwhile, another STACK pure-player, Gastar Exploration Inc., suspended its one-rig drilling program and said it was “working closely” with its financial and legal advisers on strategic alternatives, which include a possible sale or reorganization.
Oklahoma City-based Chaparral reported total production of 19,725 boe/d (61% liquids) in 2Q2018, an 8% increase y/y. In the STACK production totaled 13,198 boe/d a 44% increase y/y and a 7% increase sequentially.
Chaparral ran a three-rig drilling program during the second quarter, with rigs deployed in Canadian and Garfield counties, with 17 gross operated wells brought online, including 11 that are part of a joint venture (JV) with Bayou City Energy. The company plans to continue running three rigs during 3Q2018 and add a fourth rig before year’s end.
“We continue to see strong performance from our STACK wells, particularly our Merge Meramec in Canadian County and our Osage and Meramec wells in Garfield County,” said CEO Earl Reynolds.
Consequently, Chaparral raised its full-year guidance to 19,000-20,000 boe/d from 17,000-18,000 boe/d, and its STACK guidance to 13,000-14,000 boe/d from 11,500-12,500 boe/d. The company also raised its full-year capital expenditures (capex) to $300-325 million from $250-275 million.
Production is expected to average 13,500-14,500 boe/d in the STACK and 19,000-20,000 boe/d company-wide in 3Q2018, after the impact of noncore asset sales. Outside the STACK, Chaparral holds legacy assets in the Western Anadarko Basin, the Mississippian Lime and in southern Oklahoma.
Reynolds said management felt “extremely confident” in raising capex and production guidance but added that production from additional wells drilled by the fourth rig would not be realized until early 2019.
Chaparral reported a net loss of $22 million (minus 49 cents/share) in 2Q2018, compared with net income of $21.4 million (47 cents) in the year-ago quarter. Revenues totaled $59.6 million in 2Q2018, down 19.5% from 2Q2017.
The company’s Class A common stock also moved from over-the-counter to begin trading on the New York Stock Exchange in July under the “CHAP” ticker. Chaparral filed for bankruptcy protection in May 2016 and used Chapter 11 as an opportunity to shed $1.2 billion in debt and begin its reorganization. The company emerged from bankruptcy in April 2017.
Houston-based Gastar indicated this week that it is pondering its strategic options. On Monday it said Marc Beilinson and William Transier, with ties to the largest shareholder Ares Management LP, have been elected to the board.
In a regulatory filing last month with the U.S. Securities and Exchange Commission, Gastar revealed that Ares, which committed $425 million last year to help refinance the balance sheet and de-risk Midcontinent assets, sent a nonbinding preliminary term sheet proposing management sell the company or pursue another “potential restructuring transaction.” Ares owns substantially all of Gastar’s debt.
Gastar has formed a special committee that includes directors not affiliated with Ares to discuss the company’s future led by interim CEO Jerry Schuyler and board members Randolph Coley and Harry Quarls.
“The company continues to review and evaluate the Ares proposal, and is open to and will similarly evaluate any other proposals from other stakeholders or third parties,” Gastar said. “Additionally, the company intends to distribute a process letter to prospective bidders and investors in the coming weeks that provide additional details regarding the company’s financial restructuring process, including key deadlines.”
In connection with discussions, Gastar said it would release its lone operated rig to analyze the results of its 35-stage completion design and to preserve capital. The company plans to “continue to participate in select nonoperated wells and renew certain leases” in order to preserve its position in the STACK, which includes 69,400 net core acres.
“Although oil prices have improved over the last few quarters, the capital markets, investor sentiment and asset buyers have remained cautious,” CFO Mike Gerlich said during an earnings call to discuss 2Q2018. Gerlich said that since Gastar sold its West Edmund Hunton Lime Unit (WEHLU) earlier this year for $107.5 million, it has been unable to improve its ability to raise capital.
The company spud four gross (3.7 net) operated Osage wells and two gross (1.9 net) operated Meramec wells during 2Q2018; it also completed five gross (4.9 net) Osage operated wells using the 35-stage completion design. Gastar spent $42 million on capex in the quarter, including $32.8 million on drilling and completion (D&C) costs.
With its drilling program suspended, Gastar estimates it will spend $45.3 million on capex for the remainder of the year, including $34.2 million on D&C costs.
“Although Gastar has been historically able to reduce its capex to match its available resources, with the recent suspension of our operated drilling program we believe that we cannot reduce capital expenditures materially at this point, without creating the potential or deterioration to our core business,” Gerlich said. “The company believes it needs to consummate a substantial financing, refinancing or other financial restructuring in a relative near-term to engage in normal operated drilling activities.”
Net daily production averaged 5,700 boe/d in 2Q2018 (66% liquids), down 6.5% y/y. While oil and condensate production declined 13.3% y/y to 2,600 b/d and natural gas liquids production fell 21.4% y/y, natural gas production increased 16.8% y/y to 11.8 MMcf/d. Production figures for the quarter excludes WEHLU.
Gastar reported a net loss of $39.4 million (minus 19 cents/share) in 2Q2018, compared to a net loss of $6.4 million (minus three cents) in the year-ago quarter. Revenues totaled $10.2 million in 2Q2018, down 55% from 2Q2017.
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