Recorded gain on sale of $127.6 million HOUSTON, Nov. 5
/PRNewswire-FirstCall/ -- Gastar Exploration Ltd. (NYSE Amex: GST)
today reported financial and operational results for the three
months and nine months ended September 30, 2009. Please note that
all common share and per share amounts reported in this earnings
release reflect the 1-for-5 common share reverse split, which
occurred on August 3, 2009. Financial Results Net income for the
third quarter of 2009 was $112.3 million, or $2.29 per diluted
share, and contained several special items, including a $127.6
million gain on the sale of the Company's Australian assets, a
foreign transaction gain of $7.6 million related to the sale of the
Australian assets, early debt extinguishment expense of $15.9
million, a $3.3 million unrealized natural gas hedging loss and a
$495,000 non-cash warrant derivative loss. For the third quarter of
2008, net income was $3.0 million, or $0.07 per diluted share,
including a $3.4 million unrealized natural gas hedging gain.
Excluding the special items, as described above for both periods,
the Company would have recorded a net loss of $3.2 million, or
$0.07 per share, for the third quarter of 2009, versus a net loss
of $426,000, or $0.01 per share, for the third quarter of 2008. Net
cash flow from operations for the third quarter of 2009 was a
deficit of $2.7 million, down from $16.8 million of positive cash
flow for the third quarter of 2008. Our cash flow from operations
before working capital changes for the third quarter of 2009 was a
deficit of $1.1 million, compared to $7.0 million of positive cash
flow in the third quarter of 2008. Excluding the unrealized natural
gas hedging loss, natural gas and oil revenues in the third quarter
of 2009 decreased 39% to $7.6 million from revenues reported in the
third quarter of 2008. This decrease was due to a 48% decline in
realized natural gas prices, partially offset by a 16% increase in
production volumes, primarily in East Texas. Average daily
production for the third quarter of 2009 was 23.3 MMcfe, compared
to 20.2 MMcfe for the third quarter of 2008 and 25.6 MMcfe for the
second quarter of 2009. During the latest quarter, we elected to
curtail our East Texas production by approximately 1.9 MMcf per day
due to low natural gas prices. Due to recent improvements in
natural gas prices, in late October, we discontinued production
curtailments and returned our contracted rig to drilling in East
Texas. During the three months ended September 30, 2009,
approximately 81% of our natural gas production was hedged. The
realized effect of this hedging program was an increase of $2.2
million in revenues, reflecting an increase in total price received
from $2.46 per Mcf to $3.50 per Mcf. The realized effect of hedging
in the third quarter of 2008 was a decrease of $569,000 in
revenues, reflecting a decrease in total price received from $6.98
per Mcf to $6.67 per Mcf. The unrealized non-cash effect of our
hedging program was a loss of $3.3 million for the third quarter of
2009 and a gain of $3.4 million for the third quarter of 2008.
Lease operating expense (LOE) was $1.8 million in the third quarter
of 2009, compared to $1.9 million in the third quarter of 2008 and
$1.4 million in the second quarter of 2009. LOE per Mcfe decreased
20% to $0.82 in the third quarter, compared to $1.03 per Mcfe
during the third quarter of last year. Excluding workover expense
and other non-recurring costs, our lease operating expenses were
$0.66 per Mcfe for the third quarter of 2009 compared to $0.95 per
Mcfe for the same period in 2008. The decrease in the rate per Mcfe
was primarily due to higher current quarter production volumes and
a decrease in property taxes of $0.06 per Mcfe, due to lower
natural gas prices. Operations Review and Update As previously
reported, we completed the sale of our Australian assets in July
2009 and, to date, have received approximately $231.0 million
(AU$298.0 million), excluding taxes and transaction expenses, of
the aggregate purchase price of $232.6 million (AU$300.0 million).
We are scheduled to receive the remaining approximate $1.6 million
(AU$2.0 million) upon receipt of certain government approvals. We
may be paid, assuming current foreign exchange rates, an additional
approximate $17.5 million (AU$20.0 million) pre-tax in early 2010
if certain gross reserve certification targets for the PEL 238
coalbed methane project are achieved. The sale agreement also
acknowledges the retention of our right to future cash payments of
up to $10.0 million pursuant to a pre-existing farm-in agreement in
the event that certain production thresholds are reached on PEL
238. Neither the gross reserve certification target receivable nor
the production threshold receivables were accrued as of September
30, 2009, as the probability of earning the receivables was not
determinable. In East Texas, net production for the third quarter
of 2009 from the Hilltop area averaged 20.0 MMcfe per day, down
from 22.0 MMcfe per day in the second quarter of 2009, but up from
14.5 MMcfe per day in the third quarter of 2008. The 38%
year-over-year increase in volumes is due to the production from
three wells completed, eight wells recompleted and limited workover
operations over the 12-month period. The sequential decline is due
to the curtailment of approximately 1.9 MMcf per day due to low
natural gas prices and natural decline as a result of no new wells
being drilled during the period. Capital expenditures for the third
quarter of 2009 in East Texas were $1.9 million, which was
primarily related to recompletion activities. In late October, we
resumed our drilling program in East Texas with the spudding of the
Donelson #4 well, an approximate 19,000-foot lower Bossier test. We
expect this well will take approximately three months to drill. For
the remainder of 2009 and fiscal year 2010, we are planning three
additional lower Bossier exploratory wells and up to 11
recompletions in East Texas. In October 2009, we commenced drilling
our first vertical Marcellus Shale well, the Yoho #1, in West
Virginia. The well was drilled to a depth of 6,600 feet and is
waiting on fracture simulation and flow testing, which is scheduled
to be completed during the first half of November. We are currently
seeking pipeline capacity for the well's anticipated production but
do not expect any sales until at least mid-2010. For the remainder
of 2009 and fiscal year 2010, we currently anticipate that we will
drill at least five additional vertical Marcellus wells. We plan on
generating a development plan utilizing horizontal drilling based
on the results of our initial vertical wells. In the third quarter,
we drilled five shallow vertical wells in Appalachia and now have a
total of 15 shallow wells in the area. Currently, eight are on
production, and the remaining wells are scheduled to be on
production in the next 75 days. This shallow well drilling program
continues to be conducted to hold certain leases by production. We
plan to drill up to 15 additional shallow wells by the end of 2010.
For the three months ended September 30, 2009, net production from
the Appalachia area averaged approximately 0.4 MMcfe per day. Our
current acreage position in the Marcellus Shale play in West
Virginia and Pennsylvania is approximately 39,300 gross (35,800
net) acres, of which the majority is considered to be in the core,
over-pressured area of the Marcellus play in close proximity to
wells being drilled by other operators. Liquidity and Capital
Budget On July 13, 2009, we used proceeds from the sale of our
Australian assets to repay the $13.0 million outstanding under our
secured revolving credit facility and $27.5 million to repay in
full our term loan. On August 7, 2009, we repurchased all of our
outstanding $100.0 million 12¾% senior secured notes at a price of
106.375% of par, plus accrued and unpaid interest, in accordance
with the terms of the governing indenture by tendering payment of
$108.7 million to the noteholders. During the third quarter, we
also repaid, at par, $10.3 million of our convertible subordinated
debentures and the remaining $300,000 of our subordinated unsecured
note payable. At September 30, 2009, the Company had cash and cash
equivalents of $27.6 million and a net working capital deficit of
approximately $18.2 million. The working capital deficit is
primarily the result of $19.7 million of convertible subordinated
debentures scheduled to mature on November 20, 2009 being
classified as current portion of long-term debt. On October 28,
2009, we executed an amended and restated revolving credit facility
with an available borrowing base of $47.5 million, of which only a
$100,000 letter of credit is outstanding. The revolving credit
agreement is scheduled to mature on January 2, 2013. The revolving
credit facility has no monthly amortization and is subject to
standard semi-annual redeterminations. We have sufficient cash and,
if necessary, revolving credit capacity to repay the convertible
subordinated debentures and not interrupt our planned exploration
and development activities in East Texas and Appalachia. Planned
capital expenditures for our properties for the remainder of 2009
and 2010 are expected to be approximately $66.2 million, consisting
of $37.8 million in East Texas, $24.6 million in the Marcellus
Shale, $1.4 million in the Powder River Basin, and an additional
$2.4 million for capitalized interest and other costs. We plan on
funding this capital activity primarily through existing cash
balances and internally generated cash flows from operating
activities and, if necessary, short term access to availability
under our revolving credit facility. J. Russell Porter, Gastar's
Chairman, President and CEO, stated, "After transforming our
balance sheet through the sale of our Australian assets and
eliminating essentially all of our outstanding debt, Gastar is
moving forward with the exploitation of our existing assets and is
positioned to evaluate new opportunities. We have resumed drilling
in the deep Bossier play and are encouraged with the preliminary
results from our first vertical Marcellus Shale well. We operate
practically 100% of the projects within our 2010 capital budget and
thus can respond quickly to changing market conditions and
opportunities. With our new revolving credit facility and cash on
hand, we have the financial strength and flexibility to carry out
our planned activities and build value for our shareholders."
Gastar Exploration Conference Call Gastar Exploration's management
team will hold a conference call on Friday, November 6, 2009, at
11:00 a.m. Eastern Time (10:00 a.m. Central Time), to discuss these
results. To participate in the call, dial 480-629-9821 at least 10
minutes prior to the scheduled time and ask for the Gastar
Exploration conference call. A replay will be available
approximately two hours after the call ends and will be accessible
until November 13, 2009. To access the replay, dial (303) 590-3030
and enter the pass code 4176077#. The call will also be webcast
live over the Internet at http://www.gastar.com/. To listen to the
live call on the Internet, please visit Gastar's website at least
10 minutes prior to the scheduled time to register and download any
necessary audio software. An archive will be available on Gastar's
website shortly after the call. For more information, please
contact Donna Washburn at DRG&E at (713) 529-6600 or e-mail .
About Gastar Exploration Gastar Exploration Ltd. is an independent
energy and production company focused on finding and developing
natural gas assets in North America. The Company pursues a strategy
combining deep natural gas exploration and development with lower
risk shale resource and coal bed methane development. The Company
owns and operates exploration and development acreage in the deep
Bossier gas play of East Texas and Marcellus Shale play in West
Virginia and Pennsylvania. Gastar's coal bed methane activities are
conducted within the Powder River Basin of Wyoming and Montana. For
more information, visit our web site at http://www.gastar.com/.
Safe Harbor Statement and Disclaimer This news release includes
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward looking
statements give our current expectations, opinion, belief or
forecasts of future events and performance. A statement identified
by the use of forward looking words including "may", "expects",
"projects", "anticipates", "plans", "believes", "estimate", "will",
"should", and certain of the other foregoing statements may be
deemed forward-looking statements. Although Gastar believes that
the expectations reflected in such forward-looking statements are
reasonable, these statements involve risks and uncertainties that
may cause actual future activities and results to be materially
different from those suggested or described in this news release.
These include risk inherent in natural gas and oil drilling and
production activities, including risks of fire, explosion,
blowouts, pipe failure, casing collapse, unusual or unexpected
formation pressures, environmental hazards, and other operating and
production risks, which may temporarily or permanently reduce
production or cause initial production or test results to not be
indicative of future well performance or delay the timing of sales
or completion of drilling operations; risks with respect to natural
gas and oil prices, a material decline in which could cause Gastar
to delay or suspend planned drilling operations or reduce
production levels; risks relating to the availability of capital to
fund drilling operations that can be adversely affected by adverse
drilling results, production declines and declines in natural gas
and oil prices; risks relating to unexpected adverse developments
in the status of properties; risks relegating to the absence or
delay in receipt of government approvals or third party consents;
and other risks described in Gastar's Annual Report on Form 10-K
and other filings with the SEC, available at the SEC's website at
http://www.sec.gov/. By issuing forward looking statements based on
current expectations, opinions, views or beliefs, Gastar has no
obligation and, except as required by law, is not undertaking any
obligation, to update or revise these statements or provide any
other information relating to such statements. The NYSE Amex LLC
has not reviewed and does not accept responsibility for the
adequacy or accuracy of this release. - Financial Tables Follow -
GASTAR EXPLORATION LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited) For the Three For the Nine
Months Ended Months Ended September 30, September 30, -------------
------------- 2009 2008 2009 2008 ---- ---- ---- ---- (in
thousands, except share and per share data) REVENUES: Natural gas
and oil revenues $7,553 $12,465 $32,976 $45,195 Unrealized natural
gas hedge gain (loss) (3,290) 3,432 (7,912) 1,506 ------ -----
------ ----- Total revenues 4,263 15,897 25,064 46,701 EXPENSES:
Production taxes 76 340 325 1,083 Lease operating expenses 1,759
1,919 5,085 5,869 Transportation and treating 172 518 990 1,475
Depreciation, depletion and amortization 2,954 6,067 14,314 18,366
Impairment of natural gas and oil properties - - 68,729 - Accretion
of asset retirement obligation 90 86 265 250 General and
administrative expense 5,156 3,190 11,601 11,529 ----- ----- ------
------ Total expenses 10,207 12,120 101,309 38,572 ------ ------
------- ------ INCOME (LOSS) FROM OPERATIONS (5,944) 3,777 (76,245)
8,129 OTHER (EXPENSES) INCOME: Interest expense (1,031) (913)
(3,330) (4,898) Early extinguishment of debt (15,902) - (15,902) -
Investment income and other 499 163 522 1,467 Gain on sale of
assets, net of taxes of $65,776 127,600 - 127,600 - Warrant
derivative loss (495) - (495) - Foreign transaction gain (loss)
7,563 (21) 7,560 (59) ----- --- ----- INCOME BEFORE INCOME TAXES
112,290 3,006 39,710 4,639 Provision for income taxes - - - - ---
--- --- --- NET INCOME $112,290 $3,006 $39,710 $4,639 ========
====== ======== ===== NET INCOME PER SHARE: Basic $2.29 $0.07 $0.88
$0.11 ===== ===== ===== ===== Diluted $2.29 $0.07 $0.88 $0.11 =====
===== ===== ===== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic
48,990,509 41,419,714 45,126,907 41,419,714 ========== ==========
========== ========== Diluted 49,107,492 41,419,714 45,243,890
41,419,714 ========== ========== ========== ========== GASTAR
EXPLORATION LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE
SHEETS ASSETS September 30, December 31, 2009 2008 (Unaudited) (in
thousands) CURRENT ASSETS: Cash and cash equivalents $27,618 $6,153
Term deposit 52,374 - Accounts receivable, net of allowance for
doubtful accounts of $607 and $560, respectively 5,251 5,296
Commodity derivative contracts 1,605 9,829 Due from related parties
253 2,382 Prepaid expenses 323 879 --- --- Total current assets
87,424 24,539 PROPERTY, PLANT AND EQUIPMENT: Natural gas and oil
properties, full cost method of accounting: Unproved properties,
not being amortized 126,971 141,860 Proved properties 329,912
309,103 ------- ------- Total natural gas and oil properties
456,883 450,963 Furniture and equipment 855 997 --- --- Total
property, plant and equipment 457,738 451,960 Accumulated
depreciation, depletion and amortization (281,872) (199,433)
-------- -------- Total property, plant and equipment, net 175,866
252,527 OTHER ASSETS: Restricted cash 70 70 Commodity derivative
contracts 1,341 - Deferred charges, net 112 6,849 Drilling advances
594 4,352 Other 100 100 --- --- Total other assets 2,217 11,371
----- ------ TOTAL ASSETS $265,507 $288,437 ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts
payable $3,351 $14,256 Revenue payable 3,533 5,005 Accrued interest
263 1,505 Accrued drilling and operating costs 1,872 2,915
Commodity derivative contracts 2,411 1,121 Other accrued
liabilities 2,425 3,131 Due to related parties 2,218 2,143 Current
portion of long-term debt 19,695 151,684 Accrued taxes payable
69,832 - ------ --- Total current liabilities 105,600 181,760
LONG-TERM LIABILITIES: Long-term debt - - Commodity derivative
contracts 2,198 - Warrant derivative 495 - Asset retirement
obligation 5,584 5,095 ----- ----- Total long-term liabilities
8,277 5,095 COMMITMENTS AND CONTINGENCIES (Note 14) SHAREHOLDERS'
EQUITY: Common stock, no par value, unlimited shares authorized,
50,030,819 and 41,926,494 shares issued and outstanding at
September 30, 2009 and December 31, 2008, respectively 263,809
249,980 Additional paid-in capital 25,390 22,883 Accumulated other
comprehensive gain - fair value of commodity hedging 448 2,629
Accumulated other comprehensive gain - foreign exchange (3,798) 19
Accumulated deficit (134,219) (173,929) -------- -------- Total
shareholders' equity 151,630 101,582 ------- ------- TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY $265,507 $288,437 ========
======== GASTAR EXPLORATION LTD. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine
Months Ended September 30, 2009 2008 (in thousands) CASH FLOWS FROM
OPERATING ACTIVITIES: Net income $39,710 $4,639 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 14,314 18,366 Impairment
of natural gas and oil properties 68,729 - Stock-based compensation
2,767 2,442 Unrealized natural gas hedge loss (income) 7,912
(1,506) Realized gain on derivative contracts (424) - Amortization
of other comprehensive income - commodity hedging (2,181) -
Amortization of deferred financing costs and debt discount 1,635
1,461 Accretion of asset retirement obligation 265 250 Loss on
early extinguishment of debt 7,027 - Gain on sale of assets
(127,600) - Warrant derivative loss 495 - Changes in operating
assets and liabilities: Restricted cash for hedging program - 1,000
Accounts receivable 5,473 (1,452) Commodity derivative contracts
2,889 - Prepaid expenses 497 444 Accounts payable and accrued
liabilities (8,821) 15,438 ------ ------ Net cash provided by
operating activities 12,687 41,082 ------ ------ CASH FLOWS FROM
INVESTING ACTIVITIES: Development and purchases of natural gas and
oil properties (40,868) (109,102) Drilling advances (7,122) (3,203)
Proceeds from sale of natural gas and oil properties 229,541 -
Purchase of furniture and equipment (15) (217) Purchase of term
deposit (52,374) - ------- --- Net cash provided by (used in)
investing activities 129,162 (112,522) ------- -------- CASH FLOWS
FROM FINANCING ACTIVITIES: Proceeds from the issuance of common
shares 13,829 - Repayment of 12 3/4% senior secured notes (100,000)
- Repayment of term loan (25,000) - Repayment of revolving credit
facility (18,875) - Repayment of convertible senior unsecured
subordinated debentures (10,305) - Repayment of subordinated
unsecured notes (3,250) - Proceeds from term loan 25,000 - Decrease
in restricted cash - 3 Deferred financing charges (1,485) (343)
Other (298) - ---- --- Net cash used in financing activities
(120,384) (340) -------- ---- NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 21,465 (71,780) CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,153 85,854 ----- ------ CASH AND CASH
EQUIVALENTS, END OF PERIOD $27,618 $14,074 ======= =======
PRODUCTION AND PRICES For the Three For the Nine Months Ended
Months Ended September 30, September 30, ------------- ------------
2009 2008 2009 2008 ---- ---- ---- ---- Production: Natural gas
(MMcf) 2,139 1,849 7,155 6,291 Oil (MBbl) 1 1 3 4 Total (MMcfe)
2,145 1,856 7,175 6,315 Total (MMcfed) 23.3 20.2 26.3 23.0 Average
sales prices: Natural gas (per Mcf), including impact of realized
hedging activities $3.50 $6.67 $4.58 $7.12 Oil (per Bbl) $61.97
$111.49 $51.29 $104.58 Contact: Gastar Exploration Ltd. J. Russell
Porter, Chief Executive Officer 713-739-1800 / Investor Relations
Counsel: Lisa Elliott / Anne Pearson DRG&E: 713-529-6600 /
DATASOURCE: Gastar Exploration Ltd. CONTACT: J. Russell Porter,
Chief Executive Officer of Gastar Exploration Ltd.,
+1-713-739-1800, ; or Investor Relations Counsel, Lisa Elliott, ,
or Anne Pearson, , both of DRG&E, +1-713-529-6600, for Gastar
Exploration Ltd. Web Site: http://www.gastar.com/
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