(Source: PRNewswire-FirstCall)
HOUSTON, Aug. 6 /PRNewswire-FirstCall/ -- Gastar Exploration Ltd. (NYSE Amex: GST) today reported financial and operational results for the three months and six months ended June 30, 2009. As of the opening of trading on August 3, 2009, a previously announced one (1) common share for five (5) common shares reverse split became effective. All common share and per share amounts reported in this earnings release are reported on a 1-for-5 reverse split basis.
Financial Results
Net loss for the second quarter of 2009 was $2.4 million, or $0.05 per share, including a $4.4 million unrealized natural gas hedging loss. For the second quarter of 2008, net income was $546,000, or $0.01 per share, including a $513,000 unrealized natural gas hedging loss. Excluding the unrealized hedging loss for both periods, the Company would have earned net income of $2.0 million, or $0.05 per basic and diluted share, for the second quarter of 2009, versus net income of $1.1 million, or $0.03 per basic and diluted share, for the second quarter of 2008.
Net cash flow from operations for the second quarter of 2009 was $2.1 million, a 79% decrease from $10.0 million for the second quarter of 2008. Our cash flow from operations before working capital changes for the second quarter of 2009 was $6.1 million versus $8.4 million in the second quarter of 2008.
Excluding the unrealized gas hedging loss, natural gas and oil revenues in the second quarter of 2009 decreased 25% to $12.0 million, compared to the second quarter of 2008. This decrease was due to a 34% decline in realized natural gas prices, partially offset by a 14% year-over-year increase in total production. Average daily production for the second quarter of 2009 was 25.6 MMcfe, compared to 22.5 MMcfe for the second quarter of 2008 and 30.0 MMcfe in the first quarter of 2009. The average price for natural gas, including the realized benefit of hedging activities, was $5.12 per Mcf in the second quarter of 2009, compared to $7.71 per Mcf for the same quarter a year ago and $4.99 in the first quarter of 2009. The realized effect of hedging on natural gas sales for the second quarter of 2009 was an increase of $5.3 million in revenues, resulting in an increase in total price received from $2.85 per Mcf to $5.12 per Mcf. The realized effect of hedging on natural gas sales for the three months ended June 30, 2008 was a loss of $2.6 million in revenues, resulting in a decrease in total price received from $9.01 per Mcf to $7.71 per Mcf.
Lease operating expense (LOE) was $1.4 million in the second quarter of 2009, compared to $2.4 million in the second quarter of 2008 and $1.9 million in the first quarter of 2009. LOE per Mcfe decreased 47% to $0.62 in the second quarter, compared to $1.18 per Mcfe during the second quarter of last year. This decrease per Mcfe was primarily due to lower non-recurring workover costs in Texas of $0.44 per Mcfe. Excluding workover expense, our LOE was $0.60 per Mcfe for the three months ended June 30, 2009, compared to $0.71 per Mcfe for the same period in 2008 and $0.57 in the first quarter of 2009.
Operations Review and Update
In New South Wales, Australia, we completed the sale of our assets to affiliates of Santos QNT Pty Ltd. and Santos International Holdings Pty Ltd. in July 2009. At closing, we received approximately $217.0 million (AU$280.0 million), excluding taxes and transaction expenses, of the aggregate purchase price of $232.5 million (AU$300.0 million). We are scheduled to receive the remaining approximate $15.5 million (AU$20.0 million) upon receipt of certain government approvals. We may be paid, assuming current foreign exchange rates, an additional approximate $16.0 million (AU$20.0 million) in early 2010 if certain gross reserve certification targets for the PEL 238 coalbed methane project are achieved by Santos and the operator of the properties. The sale agreement also acknowledges our retention of our right to future cash payments of up to $10.0 million pursuant to a pre-existing farm-in agreement in the event certain production thresholds are reached on PEL 238.
In East Texas, net production for the second quarter of 2009 from the Hilltop area averaged 22.0 MMcfe per day, down from 25.3 MMcfe per day in the first quarter of 2009, but up from 16.4 MMcfe per day in the second quarter of 2008. The higher volumes in the first quarter of 2009 were primarily due to the strong initial production from the Belin #1 well, our best producing well to date, that was placed on production in late December. During the second quarter of 2009, we completed the Wildman Trust #5 well, a deep Bossier well which came on production in late May at 15.0 MMcf per day on a restricted flow rate . The Wildman Trust #5 well currently is producing approximately 9.7 MMcf per day. Throughout the field, we are producing a number of our wells, including the Wildman #5, at higher back pressures in order to conserve reserves for a higher gas price environment. In May 2009, we released the contracted drilling rig in East Texas due to low natural gas prices and to conserve capital. Capital expenditures for the second quarter of 2009 in East Texas were $5.5 million and related to one recompletion, one workover and to drilling and completing the Wildman Trust #5 well. Currently, our plans are to return to drilling in East Texas by November 2009 and resume drilling the lower Bossier, which we consider to offer the highest economic return. For the remainder of 2009, our East Texas operational activity will focus on the recompletions of seven existing Bossier wells. We believe that this is an excellent use of capital at a time of low natural gas prices and lower service costs. It allows us to move reserves into a proved developed category and be prepared to increase production more quickly when prices improve.
In West Virginia and Pennsylvania, our acreage position in the Marcellus Shale play is approximately 41,200 gross (37,200 net) acres. Earlier, we announced our intent to obtain a joint venture partner in the play to help share development costs and improve our liquidity position. With the sale of our Australian assets, we have suspended this plan and intend to perform some initial development work to better establish the potential of our acreage and position us to negotiate a partnership on more attractive terms.
Currently, we are pursuing a shallow well drilling program to hold certain leases by production, while we develop an exploration and development program for the deeper Marcellus Shale objective. At this time, eight shallow wells are on production, and two are scheduled to be on production in the next 75 days. In the second quarter of 2009, net production from the Appalachia area averaged 0.4 MMcfe per day. Capital expenditures for the second quarter in Appalachia were $1.5 million, with plans to spend approximately $7.4 million in the balance of the year. During the second half of 2009, we anticipate that we will drill ten additional shallow wells and spud a vertical Marcellus well. We plan to focus on a portion of our acreage in West Virginia, where a high level of activity by other nearby operators provide valuable information about the play and where there is better access to pipeline infrastructure.
Liquidity and Capital Budget
At June 30, 2009, the Company had cash and cash equivalents of $12.5 million. On July 13, 2009, we completed the sale of all of our Australian assets to Santos. At closing, Gastar received approximately $217.0 million (AU$280.0 million), excluding taxes and transaction expenses. On July 13, 2009, we used approximately $27.5 million of sale proceeds to repay in full our term loan and $13.0 million to repay the outstanding amount on our secured revolving credit facility. We also offered to repurchase all of our outstanding $100.0 million 12 3/4% senior secured notes at a price of 106.375% of par, in accordance with the terms of the governing indenture. On August 6, 2009, the note holders tendered to us the outstanding $100.0 million principal amount of the 12 3/4% senior secured notes.
