Gastar Exploration Inc. (NYSE MKT: GST) has entered into a definitive purchase and sale agreement (PSA) to sell Appalachian Basin assets primarily located in Marshall and Wetzel counties, West Virginia. The PSA is with an affiliate of Tug Hill Inc. for the sale of certain of Gaster’s Marcellus and Utica/Point Pleasant properties for $80 million.
The sale includes all of Gastar's producing assets and proved reserves and a portion of its undeveloped acreage in the Appalachian Basin. The sale is expected to close on or before March 31, with an effective date of Jan. 1. Proceeds will be used to reduce borrowings under Gastar's revolving credit facility.
J. Russell Porter, Gastar's president and CEO, commented, "With the pending divestiture of our Appalachian Basin acreage, we are able to improve our overall leverage without issuing equity in this depressed commodity price environment. The assets being divested, which we believe are high-quality Marcellus and Utica properties, are generating limited cash flow due to poor realized pricing in the Appalachian Basin. This sale results in Gastar emerging as the only public ‘pure play’ company focused on the Oklahoma STACK play, and enhances our ability to emphasize further exploration and development of our STACK play acreage. We continue to believe that de-risking and developing the STACK play can create significant value for our shareholders and achieve solid returns, even at current prices."
He added that, due to uncertainty concerning commodity prices and Gastar’s 2016 capital resources, the company’s Gastar's board of directors has not yet approved a full-year 2016 capital plan. “Upon the closing of the announced sale of our Appalachian Basin properties and the results of our spring borrowing base redetermination, we will be in a better position to address additional drilling plans," Porter said.
Tudor, Pickering, Holt & Co. served as financial advisor to Gastar for the sale of the Marcellus and Utica/Point Pleasant properties.
Seaport Global Securities analysts commented, “Assuming the deal closes, GST will have ~$115MM cash and $190MM drawn on its $200MM revolver; thus, if we assume the revolver is cut 50%, GST still has breathing room. Furthermore, we expect management to accelerate the process to divest a portion of its 110K net Mid-Con acres, which could be a meaningful deleveraging event without giving up too much acreage upside. Net/net, liquidity is currently stretched, but we think GST’s asset value still far exceeds its enterprise value.”