World Mining Exploration News

Gastar Announces Results for the Second Quarter of 2008 and Provides Operational Update

Gastar Exploration Ltd. today reported financial and operational results for the three and six months ended June 30, 2008.

Second Quarter Results
Net income for the second quarter of 2008 was $546,000, or $0.00 per basic and diluted share, compared to net income of $4.4 million, or $0.02 per basic and diluted share, for the second quarter of 2007. The second quarter of 2008 included a $513,000 unrealized natural gas hedging loss. Net income for the second quarter of 2007 included a gain on the sale of unproved natural gas and oil properties of $38.9 million, which was partially offset by a non-cash full cost ceiling impairment of natural gas and oil properties of $28.5 million. Excluding the effect of these items in both years, Gastar would have had second quarter income of $1.1 million, or $0.01 per share, for 2008, compared to a loss of $6.0 million, or $0.03 per share, for the second quarter of 2007.
Net cash flow from operations for the second quarter of 2008 was $10.0 million, a significant increase over $5.4 million for the second quarter of 2007.
Natural gas and oil revenues doubled to $15.9 million, excluding the unrealized hedging loss, for the second quarter of 2008, compared to revenues of $8.0 million for the second quarter of 2007. Of the increase, 49% was due to a 49% increase in production, primarily in East Texas, and 51% of the increase was due to a 34% increase in realized prices.
Average daily production increased to 22.5 MMcfe/d in the second quarter of 2008, compared to 15.1 MMcfe/d for the second quarter of 2007. As anticipated, second quarter 2008 production was down from first quarter 2008 production of 26.5 MMcfe/d due to the natural decline in production volumes and timing of completing new wells.
During the second quarter of 2008, approximately 61% of our total natural gas production was hedged. The realized effect of hedging on natural gas sales was a decrease in revenues of $2.6 million, resulting in a decrease in the average price per Mcf received from $9.01 to $7.71, compared to an average realized price for natural gas of $5.75 per Mcf in the second quarter of 2007. The Company has approximately 50% of its remaining 2008 estimated natural gas production hedged and 24% of its 2009 estimated natural gas production hedged, as of June 30, 2008.
Lease operating expense (LOE) was $2.4 million, or $1.18 per Mcfe, for the second quarter of 2008, compared to $1.5 million, or $1.10 per Mcfe, for the second quarter of 2007. The increase in total LOE was due to an increase in Texas workover costs, coupled with higher production volumes. During the 2008 second quarter, workover costs totaled $952,000, or $0.47 per Mcfe, as compared to $276,000, or $0.20 per Mcfe, for the same period in 2007. Excluding workover costs, LOE for the three months ended June 30, 2008 was $0.71 per Mcfe, as compared to $0.90 per Mcfe for the same period in 2007.
Operations Review and Update
During the quarter ended June 30, 2008, the Company completed two Bossier wells for a 100% success rate. For the three and six months ended June 30, 2008, net production from the Hilltop area averaged 16.4 MMcfe per day and 18.6 MMcfe per day, respectively. Capital expenditures for the second quarter of 2008 in East Texas were approximately $38.0 million, including $25.7 million related to the look-back litigation settlement allocated to unproved property costs. Currently, we are drilling one lower Bossier well, the Belin #1, (an offset to the Wildman #3) and one middle Bossier well, the Lone Oak Ranch #7, (an offset to the LOR #6). If successful, both of these wells are expected to begin producing natural gas in November 2008. For the balance of 2008, we anticipate a two-rig drilling program in East Texas focused on drilling Bossier wells offsetting recent successful wells.
Gastar is pleased to announce a new strategic asset in the Marcellus Shale in northern West Virginia and southwestern Pennsylvania. In late 2007, the Company began acquiring acreage in the Marcellus Shale and to date has acquired approximately 31,200 gross acres, with the intent, based on deals currently being finalized, of increasing our acreage position in this area to over 40,000 gross acres by early September 2008. The Company’s initial activities in this area will include drilling 12 to 18 shallow wells in 2008 that will allow us to hold a portion of our acreage with production. The held-by-production (HBP) acreage, plus the long-term leases comprising our remaining acreage position, will allow us time to further evaluate the optimal development and production strategy for this developing shale play. To date, we have drilled five shallow wells that we anticipate will be on production by late in the third quarter.
In New South Wales, Australia, the 20-well exploration and appraisal corehole drilling program that Gastar and our joint venture partner on the PEL 238 concession initiated in early 2008 has met with early success. We have successfully completed the drilling of the first three test coreholes, the Dewhurst #2, #3 and #4, in a 20-corehole exploration and appraisal drilling program. The results of the coreholes confirmed the presence of a thick Bohena coal seam developed to the south and east of the Bibblewindi pilot production area. We are currently drilling the Dewhurst #7 corehole and expect to drill between four and six additional coreholes by year-end. Additionally, we plan to drill four to five production pilot wells in the next 12 months.
Importantly, the final permitting and construction of the 33-kilometer gathering system from our production pilot areas to the Wilga Park Power Station remains on schedule to allow first commercial sales by December 2008 or January 2009. On June 30, we announced our acquisition of a 35% interest in the Wilga Park Power Station from our joint venture partner, Eastern Star Gas Limited (ASX: ESG) for US$3.25 million. The acquisition also includes a 35% working interest in Petroleum Production License 3, which contains the Coonarah conventional gas field.
In the Powder River Basin, our average net production remained steady at approximately 5.5 MMcf/d. Although no new wells were drilled in the second quarter, activity is expected to increase in the second half of 2008.
“Gastar has been quite active over the past year positioning the company for further growth and for the creation of significant value for our shareholders,” J. Russell Porter, Gastar’s Chairman, President and CEO stated. “Our continued success in the deep Bossier play, along with the positive results in New South Wales and our new Marcellus Shale acreage, positions Gastar for significant reserve growth and coinciding increases in shareholder value. We have continued to refine our East Texas drilling program and just started a second Bossier well using the slim-hole drilling technology that significantly reduced our drilling costs in the LOR #6 well.
“Though Texas production in the second quarter was down from the previous quarter, we anticipate continued growth in Texas volumes for the remainder of 2008 as we move toward another year of record production.
“In New South Wales, we are excited to be moving our coal seam gas project towards first sales around year-end. The early results of our corehole pilot program have been very encouraging, and we are looking forward to getting the multi-lateral production program underway in September.
“We are also very enthusiastic about the growth potential of our Marcellus Shale position in Appalachia. We believe we have established an attractive acreage position in the core area for the Marcellus play, with a concentration in northern West Virginia and southwest Pennsylvania where operational issues regarding water sources, water disposal and gas transportation are likely to be minimized. Initially, our position will require limited initial capital expenditures while allowing Gastar to capture a significant resource potential in one of the true up-and-coming resource plays in North America. Our strategy and the location of our assets will also allow Gastar to benefit from the efforts of other E&P and service companies as the operational challenges in the Marcellus play are resolved,” Porter said.