Gastar CEO Says Gastar's Marcellus Worth $7 Per Share With Development

Aug.22.13 | About: Gastar Exploration (GST)

Gastar Exploration's (NYSEMKT:GST) CEO Russ Porter was interviewed on video at the Enercom conference in Denver. This video was posted online today and can be seen here. The interview was positive and Porter expressed his positive view on his company's stock. In particular, he said that with further development just the company's Marcellus asset could be worth $7 per share (similar to analysis in recent articles). That's vs. the $3.25 share price at the time and the current ~$2.80 share price.

Porter also succinctly recapped recent events at Gastar that have driven the dramatic revaluation of the stock. He stated that he expects the East Texas asset sale to close by the end of August, and highlighted the company's strong liquidity position.

I have transcribed the interview and present it below. This is particularly relevant to Gastar, Newfield (NYSE:NFX) -- which bought the non-core Oklahoma asset discussed -- and Chesapeake (NYSE:CHK), which sold the asset to Gastar for what looks like half of its fair market value at the time, and is continuing to liquidate assets to reduce its leverage. The asset sale to Gastar is not a positive indicator of further divestitures by Chesapeake, as Chesapeake obviously left considerable "money on the table" in the transaction.

Enercom Oil & Gas 360 Interview With Russ Porter

Enercom: Gastar today is certainly a different Gastar than only a short time ago. Talk to us about the recent transition and high grading of your portfolio.

Russ Porter: We went through some changes. We resolved major litigation we had in a very favorable fashion, we acquired a new asset in a new play, and we bought back 10% of our stock at a steep discount as a part of that transaction. So we've really transformed the company from where we were even six months ago.

EN: Russ, you recently reported Q2 2013 results with revenues and production drastically increasing over last year. What is driving your production increases?

RP: All of that was really driven by the development of our Marcellus Shale play. We're in the very liquids-rich portion of the play in West Virginia. We drilled about 23-25 wells in the past year and brought them on production. Those solely accounted for that ramp-up.

EN: Your company took a number of steps to improve its liquidity this year. Walk us through those initiatives.

RP: We issued $200 million of high yield debt. That was done back in May. That was a very good transaction for us from a liquidity standpoint. We entered into an agreement to sell our East Texas asset for $46 million. And we just closed on the sale of non-core interests that we acquired in Oklahoma for about $60 million. Pending the sale of the East Texas properties, we'll have $200 million of debt and $125 million of cash.

EN: You had just mentioned the sale of your non core Oklahoma acreage. Can you talk more about that?

RP: We acquired some acreage from Chesapeake back in May, 160,000 acres. About half of that we were interested in for our core play. The other half, we were considering bringing in a joint venture partner, but we got an offer from another operator active in the area that was at a very good price. Considering lease expirations, the amount of capital it would take to drill and that with that sale we essentially removed all the financial risk from the entire acquisition, we decided that we would go ahead and sell the properties rather than joint venturing them down the road.

En: What catalysts should investors keep an eye out for in the remainder of 2013?

RP: We should announce the closing of the sale of the East Texas properties by the end of this month, and then we will have a series of operated and non-operated wells in the Hunton play in Oklahoma that people are waiting to see those results. And then we will pick up development of our Marcellus shale again in early 2014. We will have a very active year.

EN: Russ, what other insights would you like to share with us?

RP: I'm sure everyone is a big proponent of their own story. When I look at Gastar and where we trade now at about $3.25 per share. If you just looked at our proved reserves, only our net asset value is in the $4.50 range. And if we just look at adding the continued development of the Marcellus shale alone, we're easily worth about $7 per share. So I think we're a fantastic investment opportunity right now.

Disclosure: I am long GST and may buy or sell any stock mentioned with no further notice. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.