Gastar Exploration, Ltd.
1331 Lamar Street
Houston, TX 77010
Gastar Exploration Ltd. (NYSE MKT: GST) is engaged in the exploration, development and production of natural gas, natural gas liquids, condensate and oil in the United States. Our current focus is on the Marcellus Shale play, where we are in the early stages of developing and producing natural gas reserves that also yield significant quantities of condensate and high-value natural gas liquids (NGLs). Our legacy assets are located in the deep Bossier natural gas play in East Texas, where we currently have gas production from about 25 wells and oil production from four others that are testing shallower oil plays.
Gastar Exploration Ltd. engages in the acquisition, exploration, development, and production of natural gas and oil in the United States. It focuses on deep structures identified through seismic and other analytical techniques, as well as unconventional natural gas reserves, such as shale resource plays. As of December 31, 2010, the company held leases covering approximately 33,400 gross acres in the deep Bossier gas play in the Hilltop area of east Texas; and had approximately 87,700 gross acres in the Marcellus Shale in the Appalachian area of West Virginia, and central and southwestern Pennsylvania. It also owned an average non-operated working interest of approximately 40% in approximately 43,400 gross acres within the Powder River Basin of Wyoming and Montana. Gastar Exploration Ltd. was founded in 1987 and is based in Houston, Texas.
Gastar is actively developing and producing reserves in the Marcellus Shale play in the Appalachian Basin, which is one of the hottest E&P plays in the U.S. Approximately two-thirds of Gastar's total net production currently comes from our Marcellus Shale wells. Gastar's focus in the Marcellus Shale is in northern West Virginia where the Marcellus contains high-Btu-content natural gas that also yields significant quantities of condensate and high-value natural gas liquids. Currently, over a third of Gastar's production from this area is condensate and NGLs - making well economics extremely attractive. Gastar expects to have a total of 38 gross operated wells and 11 gross non-operated wells on production in the Marcellus Shale by year-end 2012.
Gastar's current focus of activity in the Marcellus Shale play is in northern West Virginia. The economics of these wells is enhanced by the high-Btu content of the natural gas, which yields significant quantities of condensate and high-value natural gas liquids.
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Gastar holds approximately 75,500 net acres in northern West Virginia and southwestern Pennsylvania near acreage held by some of the most active participants in the play. Gastar's leases are strategically located in areas where it is believed that the Marcellus Shale is over-pressured and where operational issues such as water sources, water disposal and gas transportation have proven to be easier to manage than in other parts of the play. Gastar's contiguous acreage position enables it to drill long laterals (an average of approximately 5,000 feet in length), and perform pad drilling operations and conduct large multi-stage fracture stimulations that improve well performance and economics.
Acreage in Marshall and Wetzel counties in West Virginia is the current focus of Gastar's activities and capital budget, with over 100 additional well locations identified for near-term drilling.
Gastar is drilling multiple Marcellus Shale horizontal wells in northern West Virginia from drilling pads similar to those shown above.
Gastar is developing the West Virginia acreage in partnership with Atinum Partners of South Korea, a leading private investment firm. Gastar completed a joint venture with Atinum in November 2010 which covers 42,200 net joint venture acres (21,100 net acres to Gastar) in West Virginia and Pennsylvania.
Outside the Atinum partnership, Gastar also holds 54,400 net acres primarily in Preston, Tucker and Pendleton counties in West Virginia in a dry-gas area referred to as our Marcellus East acreage. Due to current low natural gas prices, Gastar is deferring development of the Marcellus East acreage until prices improve.
Gastar controls approximately 33,500 gross (17,100 net) acres in the Hilltop area of Leon and Robertson counties in East Texas, located about halfway between Dallas and Houston. The acreage is 100% operated by Gastar.
The deep Bossier sands in East Texas, a natural gas play, is a significant source of Gastar's current natural gas production. Gastar believes that its East Texas acreage holds strong potential for substantial additional natural gas in a higher commodity price environment and potential oil reserves in several shallower formations.
The Bossier Sands Gas Play
Gastar participated in its first Bossier well with Anadarko Petroleum in 2001 and completed its first operated well in the play in 2004. To date, Gastar has successfully completed 26 upper, middle and lower Bossier natural gas wells.
Bossier wells are characterized by high initial production, attractive estimated ultimate recoverables (EURs) and long-lived reserves from multiple pay zones at depths ranging from 16,500 to 19,500 feet. The last eight wells Gastar drilled in the Bossier sands had average initial production of approximately 16.5 MMcfe per day and average EURs of 11.8 Bcf of gas reserves.
Gastar has a multi-year drilling inventory of natural gas wells in the Bossier play, but due to the relatively low Btu content of the gas and continued low natural gas prices, we are deferring additional drilling in this area until higher natural gas prices provide internal rates of return that would be competitive with our Marcellus and Mid-Continent projects.
Glen Rose and Eagle Ford/Woodbine Shale Oil Potential
In addition to its Bossier natural gas activity, Gastar has performed initial testing of shallower oil potential in the Eagle Ford/Woodbine Shale and Glen Rose Limestone, both of which lie above the Bossier at depths of about 6,500 to 14,000 feet.
Results of these drilling tests have been inconclusive to date, and Gastar has opted to monitor the activities and results of other producers who are also testing these same oil-bearing formations immediately to the east and south of its acreage before committing additional capital to further drilling tests.
Gastar has acquired an initial lease position in a new oil play located in the Mid-Continent region of the United States with the objective of developing a program focused on low-cost, repeatable horizontal development of conventional oil-bearing formations. Along with a partner, we currently hold approximately 36,700 net leasehold acres (18,350 net acres to Gastar) in three adjoining areas of mutual interest.
The initial plan is to drill and complete three gross (1.5 net) horizontal wells by early 2013 to test the potential of the area. Gastar will pay 62.5% of the first four wells' gross drilling and completion costs and 56.25% of the next four wells' gross drilling and completion costs to earn a 50% working interest. For all additional wells beyond the first eight in a prospect area, we are responsible for paying only the drilling and completion costs associated with our 50% working interest (approximate net revenue interest of 39%). We are responsible for all leasing and permitting activities. Gastar's first non-operated well in the Mid-Continent began flow-back operations on October 5, 2012. Based on a recent 30 day average, the well is producing at a stabilized daily gross rate of approximately 84 barrels of oil, 428 barrels of completion fluids and 94 Mcf of 1,496 Btu natural gas, yielding approximately 105 barrels of oil equivalent per day after processing. To date, approximately 19% of the completion fluids from the 13-stage fracture stimulation have been recovered. Drilling and completion costs on the well to date are approximately $4.8 gross ($3.0 net) million.
The drilling of the second of the three planned wells has commenced. This well has reached its vertical depth of approximately 7,900 feet, and intermediate casing has been set. Drilling of the approximately 4,400 foot horizontal lateral is in progress (as of mid-December 2012), and the well is anticipated to be on production by late January 2013. Drilling and completion costs of this well are estimated to be $4.3 gross ($2.7 net) million. The third Mid-Continent well is scheduled to commence drilling early January 2013.