2009-08-05-2009-07-02-2009-07-13

Acquired 35% interest in 2.2 million net acres in PEL 238, 433 & 434 in Gunnedah Basin in northern New South Wales, NZ, gaining 6.6 Bcf proved.

Facing a going-concern crisis and needing to raise $95 million in 2009 to meet debt maturities and capex, Gastar Exploration Ltd., Houston, (NYSE Amex: GST; Toronto: YGA) has achieved its anticipated liquidity-enhancing event with the sale of all of its Australian assets to affiliates of Santos Ltd. (Australia: STO) for some US$240 million (A$300 million). The deal is an international exit for Gastar, which will turn its focus to its interests in the East Texas Deep Bossier and Marcellus shale plays. "This is clearly a transformative transaction for Gastar," says J. Russell Porter, Gastar president and chief executive. "We pursued multiple avenues in order to address upcoming debt maturities and to fund the future capital expenditures necessary to continue the development of our Australian assets and our North American assets. After examining all alternatives available, we determined that the sale of the Australian assets was the most prudent course and provided the most attractive near-term and future benefit to our shareholders." Santos QNT Pty Ltd. and Santos International Holdings Pty Ltd. will acquire Gastar's 35% interest in petroleum exploration licenses 238, 433 and 434 in the Gunnedah Basin in northern New South Wales, along with the shares of Gastar Power Pty Ltd., the entity holding Gastar's 35% interest in the Wilga Park power station. Gastar holds 2.2 million net acres (6 million gross) in the licenses with net proved reserves of 6.6 billion cubic feet of gas. Gastar's net proceeds after paying Australian income taxes are expected to be approximately US$175 million. At year-end 2008, the company had US$6.2 million in cash and equivalent and a net working-capital deficit of US$157.2 million, including US$151.7 million of long-term debt with US$52.1 million in debt maturities in 2009. In March, Porter said the company's independent accounting firm had issued an opinion "that our need to refinance or raise capital to retire debt maturing in 2009 raises substantial doubt about our ability to continue as a going concern." Gastar plans to use the proceeds to pay substantially all of its outstanding debt and will eliminate $20 million per year in interest payments. In addition, Gastar may be paid an additional US$16 million in early 2010 based on targets for gross proved plus probable reserves for PEL 238 at year-end 2009. Likewise, Gastar may also receive up to US$10 million in future cash payments from Eastern Star Gas Ltd. (Australia: EGG), a partner in the coal-seam play, if production thresholds are achieved. Porter says, "Gastar will maintain its current ownership in the East Texas Deep Bossier and Marcellus shale plays and plans to proceed with the development of those assets while limiting capital expenditures to excess cash flow generated by its producing assets. We will now have the financial resources to be a substantially debt-free entity holding high-growth, North American assets and will be financially positioned to execute our strategy in both the Deep Bossier and Marcellus shale plays." Closing is expected on July 10. In addition, following the completion of the Santos transactions, Gastar intends to implement a 1-for-5 reverse share consolidation that was authorized by Gastar's shareholders in June 2008. The share consolidation is expected to be effected on or about July 31. Also, Gastar has elected to voluntarily de-list its shares from the Toronto Stock Exchange, which represents less than 1% of total daily trading of Gastar common shares. Tudor, Pickering, Holt & Co. Securities Inc. is financial advisor to Gastar and provided a fairness opinion. Analysts at Pritchard Capital Partners say the deal is "clearly a milestone transaction" for Gastar. "The company will now be able to focus on its core U.S. assets in the Deep Bossier of East Texas and Marcellus shale with liquidity issues removed from the equation. The value Gastar is receiving for its Australian assets is in line with what we expected, supported by the value implied by the market price of joint-venture partner Eastern Star Gas Ltd. as well as other Australian coal-seam gas M&A transactions." Standard & Poor's Ratings Services has placed its "CCC" corporate credit and other ratings on Gastar on CreditWatch with positive implications. "We believe the sale will materially reshape Gastar's balance sheet by allowing it to repay nearly all debt, which will eliminate refinancing risk and covenant concerns and strengthen its liquidity," says S&P analyst Amy Eddy.