Sunday, September 26, 2010

Gastar Exploration (GST): Marcellus Shale Update

By Andrea:

Gastar Exploration Ltd. (GST) recently entered into a joint venture with Atinum Marcellus LLC., where Atinum will acquire 21.43% of Gastar's Marcellus Shale Assets:

Gastar Exploration Ltd. (GST) announced recently (Sept 22, 2010) that it has entered into a joint venture agreement with Atinum Marcellus I LLC, an affiliate of Atinum Partners Co., Ltd, a leading investment firm located in the Republic of Korea. Pursuant to the agreement, Gastar will assign an initial 21.43% interest to Atinum in all of its existing Marcellus Shale assets in West Virginia and Pennsylvania, approximately 34,200 net acres, and certain producing shallow conventional wells in a transaction valued at approximately $70 million.

Under the terms of the transaction, Atinum will pay Gastar $30 million in cash upon closing and an additional $40 million in the form of a drilling carry. Upon the completion of the funding of the drilling carry, Atinum will own a 50% interest in the 34,200 net acres of Marcellus Shale rights currently owned by Gastar. Gastar will continue to serve as operator of all of the Marcellus Shale interests in the JV. The transaction is expected to close within 30 to 45 days and is contingent upon the receipt of certain required approvals from government agencies in the Republic of Korea and other customary closing conditions.

The terms of the drilling carry call for Atinum to fund its ultimate 50% share of drilling, completion and infrastructure costs along with 75% of Gastar's ultimate 50% share of those same costs until the $40 million carry has been satisfied. Gastar and Atinum are pursuing an initial three-year development program that calls for the partners to drill one horizontal Marcellus Shale well during the remainder of 2010 and a minimum of 12 horizontal wells in 2011 and 24 horizontal wells in each of 2012 and 2013.

An initial area of mutual interests ("AMI") will be established for potential additional acreage acquisitions in Ohio and New York along with the counties in West Virginia and Pennsylvania in which the existing interests are located. Within the initial AMI, Gastar will act as operator and will offer any future lease acquisitions to Atinum on a 50/50 basis, while Atinum has agreed to pay Gastar on an annual basis an amount equal to 10% of lease bonuses and third party leasing costs up to $20 million and 5% of the costs on activities above $20 million. Until June 30, 2011, Atinum will have the right to participate in any future leasehold acquisitions made by Gastar, outside of the initial AMI and within West Virginia or Pennsylvania, on terms identical to those governing the existing Marcellus JV.

J. Russell Porter, Gastar's President and CEO, commented, "We are pleased to announce this transaction and we look forward to our partnership with Atinum Partners. This joint venture will allow Gastar to accelerate development of our Marcellus Shale assets while maintaining a low level of leverage and a high degree of financial flexibility. This transaction also realizes a significantly higher valuation for our Marcellus Shale assets than what has been reflected in our share price and thus made a joint venture the least dilutive method to finance development. We may utilize the proceeds from this transaction to help fund our Marcellus Shale development plans, future drilling and development of our East Texas asset, lease or property acquisition opportunities and potential debt reduction."

Kyung Soo Chung, President and CEO of Atinum Partners, commented, "We are excited about the opportunity to invest in the Marcellus Shale and to partner with an experienced operator such as Gastar. This is our third investment in the U.S. energy sector in the last 12 months, continuing our strategy to actively invest in significant growth opportunities."

Vinson & Elkins LLP acted as legal advisor for Gastar. BMO Capital Markets acted as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisor for Atinum.

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