Gastar Exploration Announces Fourth Quarter and Full-Year 2017 Results

HOUSTON, March 15, 2018 /PRNewswire/ -- Gastar Exploration Inc. (NYSE American: GST) ("Gastar" or the "Company") today reported financial and operating results for the three and twelve months ended December 31, 2017. 

Fourth quarter 2017 highlights

• Average daily production of 6,900 barrels of oil equivalent ("Boe") per day ("Boe/d"), a 17% increase over fourth quarter 2016 and an 11% increase over third quarter 2017
• STACK Play production, which excludes West Edmund Hunton Lime Unit ("WEHLU") production, averaged 4,000 Boe/d, a 48% increase over fourth quarter 2016 and an 18% increase over third quarter 2017

Full-Year 2017 Highlights 

• Gastar's year-end 2017 U.S. Securities and Exchange Commission ("SEC") proved reserves increased 68% to 42.9 million barrels of oil equivalent ("MMBoe"), as previously reported.
• Successful drilling optimization program reduced days to drill by 36% from first half of 2017.
• Positioned company to become a pure-play Oklahoma STACK Play operator with the sale of its WEHLU acreage, which closed in February 2018.

Michael Gerlich, Gastar's Chief Financial Officer, commented, "We ended 2017 with a solid fourth quarter and strong momentum entering 2018.  Fourth quarter revenues, before the effects of our commodity derivatives, were up substantially over the fourth quarter of 2016, driven by a 17% increase in production and an 18% increase in product pricing." 

"We achieved numerous other objectives during the year, including operational improvements and significant reserve growth, particularly across our STACK Play acreage which increased 184% year-over-year. With the capital restructuring in March 2017 and the recent closing of our WEHLU asset divestiture, we are better positioned to focus on building shareholder value."

Financial Review

Net loss attributable to Gastar's common stockholders for the fourth quarter of 2017 was $16.6 million, or a loss of $0.08 per share, compared to a fourth quarter 2016 net loss of $8.2 million, or a loss of $0.06 per share.  Adjusted net loss attributable to common stockholders (non-GAAP), which excludes non-cash and unusual items, improved to $6.6 million, or a loss of $0.03 per share for the fourth quarter of 2017, compared to an adjusted net loss attributable to common stockholders of $7.5 million, or a loss of $0.06 per share, for the fourth quarter 2016 and an adjusted net loss attributable to common stockholders of $11.2 million, or $0.08 per share, for the third quarter of 2017. (See the accompanying reconciliation of the non-GAAP financial measure adjusted net loss at the end of this news release.)

Adjusted earnings before interest, income taxes, depreciation, depletion and amortization ("adjusted EBITDA") (non-GAAP) for the fourth quarter of 2017 increased 46% to $15.5 million compared to adjusted EBITDA of $10.6 million for the fourth quarter of 2016 and up 49% sequentially from $10.4 million for the third quarter of 2017. (See the accompanying reconciliation of the non-GAAP financial adjusted EBITDA at the end of this news release.)

Revenues from oil, condensate, natural gas and natural gas liquids ("NGLs"), before the effects of commodity derivatives contracts, totaled $23.7 million in the fourth quarter of 2017, a 38% increase from $17.2 million in the fourth quarter of 2016 and a 30% increase from $18.2 million in the third quarter of 2017.  The increase from the fourth quarter of 2016 in oil, condensate, natural gas and NGLs revenues primarily resulted from an 18% increase in equivalent product pricing and a 17% increase in equivalent production volumes.  The increase from third quarter 2017 revenues was due to a 17% increase in equivalent product pricing and an 11% increase in equivalent production volumes.

Commodity derivatives were in place for approximately 88% of our oil and condensate production, 68% of our natural gas production and 33% of our NGLs production for the fourth quarter of 2017.  Commodity derivative contracts settled during the period resulted in a $1.7 million increase in revenue compared to a $1.8 million increase in revenues in the fourth quarter of 2016.  For details on Gastar's current hedging position, please see our Annual Report on Form 10-K for the year ended December 31, 2017 filed today with the SEC.

The following table provides a summary of Gastar's total net production volumes and overall average commodity prices for the three and twelve months ended December 31, 2017 and 2016:

Average daily production for the full-year 2016 includes production of 1,800 Boe/d from our Appalachian Basin assets substantially all of which were sold in April 2016.  Fourth quarter 2017 Mid-Continent equivalent production consisted of approximately 72% liquids, comprised of 49% oil and 23% NGLs, up 1% from fourth quarter 2016 production and in line with third quarter 2017. 

In the Mid-Continent area, lease operating expenses ("LOE") per Boe of production were $9.14 in the fourth quarter of 2017 versus $8.67 in the fourth quarter of 2016 and $10.80 in the third quarter of 2017, including workover costs.  Excluding workover expense, LOE per Boe for the fourth quarter of 2017 was $8.64 as compared to $7.09 per Boe in the fourth quarter of 2016 and $8.80 per Boe for the third quarter of 2017.  

General and administrative ("G&A") expense was $4.4 million in the fourth quarter of 2017 compared to $3.6 million in the fourth quarter of 2016 and $4.1 million in the third quarter of 2017. G&A expense for the fourth quarter of 2017 included $1.9 million of non-cash stock-based compensation expense, versus $773,000 in the fourth quarter of 2016 and $1.8 million in the third quarter of 2017. 

Liquidity and Capital Budget

Gastar's capital expenditures in the fourth quarter of 2017 totaled $36.9 million, comprised of $29.1 million for drilling, completions and infrastructure costs, $5.0 million for unproved acreage extensions, renewals and additions and $2.8 million of other capitalized costs.  For all of 2017, capital expenditures, excluding acquisitions and divestments, totaled $131.4 million.

As previously reported, the Company has approved a 2018 capital budget of approximately $115 million comprised of $69.5 million for a one‑rig STACK operated drilling and completion program, $15.7 million for STACK non-operated drilling and completion costs, $18.2 million in leasing costs and $11.6 million for capitalized interest and administration costs.  We expect approximately 86% of the 2018 capital budget to be operated.  We plan to fund our 2018 capital budget through existing cash balances, internally generated cash flow from operating activities, net cash proceeds from the WEHLU Sale and possible future property sales. 

On February 28, 2018 the Company completed the previously announced sale of its interest in WEHLU for $107.5 million, adjusted for the effective date of October 1, 2017 and resulting in net cash proceeds of $98.8 million at closing.  

Operations Review and Update

Stephen Roberts, Senior Vice President and Chief Operating Officer, commented, "The new drilling and completion techniques that we implemented continue to produce positive results.  As compared to the first half of 2017, we have seen a reduction in the number of days to drill a well from 19.4 to 12.4 days and reduced completion days from seven to four.  Based on efficiency improvements, our current cost per well is expected to be approximately $4.5 million for Osage wells and $4.7 million for Meramec wells.  We are particularly pleased with the improvement in production of our new Gen 3.0 completion design when compared to earlier generation well completions.  We will continue to explore for ways to improve production performance as we further de-risk and delineate the Meramec and Osage formations on our STACK Play acreage throughout 2018."

The following table provides a summary of Gastar's Mid-Continent production volumes and average commodity prices for the three and twelve months ended December 31, 2017 and 2016:

Average daily production for the Mid-Continent area includes production of 2,900 and 3,100 Boe/d, for the quarter and full-year of 2017 respectively, from WEHLU which was sold on February 28, 2017.     

During 2017, Gastar spud a total of 11 gross (3.1 net) operated Meramec and 17 gross (11.5 net)  operated Osage wells; completed 15 gross (3.8 net) operated Meramec and 16 gross (10.6 net) operated Osage wells and participated in numerous third-party wells across its 67,000 core STACK Play acreage. This highly contiguous position is 84% operated and 66% held by production.

To date in 2018, Gastar spud three gross (2.5 net) operated Osage wells and completed two gross (1.8 net) operated Osage wells.

Guidance for First Quarter 2018 and Full-Year 2018

Our guidance, as previously provided, for the first quarter and full-year 2018 is presented in the table below and represents the Company's best estimate of the range of likely future results. Guidance could be affected by the factors described below in "Forward Looking Statements."

Conference Call

Gastar has scheduled a conference call for 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Friday, March 16, 2018.  Investors may participate in the call either by phone or audio webcast.

For more information, please contact Donna Washburn at Dennard-Lascar Associates at 713-529-6600 or e-mail dwashburn@DennardLascar.com.

About Gastar Exploration

Gastar Exploration Inc. is a pure-play Mid-Continent independent energy company engaged in the exploration, development and production of oil, condensate, natural gas and natural gas liquids in the United States. Gastar's principal business activities include the identification, acquisition and subsequent exploration and development of oil and natural gas properties with an emphasis on unconventional reserves, such as shale resource plays. Gastar holds a concentrated acreage position in the normally pressured oil window of the STACK Play, an area of central Oklahoma which is home to multiple oil and natural gas-rich reservoirs including the Oswego limestone, Meramec and Osage bench formations within the Mississippi Lime, the Woodford shale and Hunton limestone formations. For more information, visit Gastar's website at www.gastar.com.

Forward Looking Statements

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 risks inherent in natural gas and oil drilling and production activities, including risks with respect to continued low or further declining prices for natural gas and oil that could result in further downward revisions to the value of proved reserves or otherwise cause Gastar to further delay or suspend planned drilling and completion operations or reduce production levels which would adversely impact cash flow; risks relating to the availability of capital to fund drilling operations that can be adversely affected by adverse drilling results, production declines and continued low or further declining prices for natural gas and oil; 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; delays in receipt of drilling permits; risks relating to unexpected adverse developments in the status of properties; risks relating to the absence or delay in receipt of government approvals or third-party consents; risks relating to our ability to integrate acquired assets with ours and to realize the anticipated benefits from such acquisitions; 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 www.sec.gov.  Our actual sales production rates can vary considerably from tested initial production rates depending upon completion and production techniques and our primary areas of operations are subject to natural steep decline rates. In addition, production information from our recently completed wells completed using our Gen 3 design is preliminary based on limited flow back history and therefore may not be fully indicative of sustained production rates or predictive of ultimate hydrocarbon recoveries.  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.

Targeted expectations and guidance for the first quarter and full-year of 2018 are based upon the current 2018 planned capital expenditures budget, which may be subject to revision and reevaluation dependent upon future developments, including changes in commodity prices, drilling results, our liquidity position, availability of crews, supplies and production capacity, weather delays and significant changes in drilling costs.

Unless otherwise stated herein, equivalent volumes of production are based upon an energy equivalent ratio of six Mcf of natural gas to each barrel of liquids (oil, condensate and NGLs), which ratio is not reflective of relative value.  Our NGLs are sold as part of our wet gas subject to an incremental NGLs pricing formula based upon a percentage of NGLs extracted from our wet gas production.  Our reported production volumes reflect incremental post-processing NGLs volumes and residual gas volumes with which we are credited under our sales contracts.

- Financial Tables Follow –

NON-GAAP FINANCIAL INFORMATION AND RECONCILIATION

We use both GAAP and certain non-GAAP financial measures to assess performance.  Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  Our management believes that these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate our financial performance using the same measures as management.  These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.  In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.  A reconciliation is provided below outlining the differences between these non-GAAP measures and their most directly comparable financial measure calculated in accordance with GAAP.