Gastar Exploration Announces Second Quarter 2018 Results

HOUSTON, Aug. 9, 2018 /PRNewswire/ -- Gastar Exploration Inc. (NYSE American: GST) ("Gastar" or the "Company") today reported financial and operating results for the three and six months ended June 30, 2018.

Net loss attributable to Gastar's common stockholders for the second quarter of 2018 was $39.4 million, or a loss of $0.19 per share, compared to a second quarter 2017 net loss of $6.4 million, or a loss of $0.03 per share. Adjusted net loss attributable to common stockholders for the second quarter of 2018 was $15.3 million, or a loss of $0.07 per share, excluding the impact of an $18.0 million non-cash, pre-tax ceiling test impairment charge and a $6.1 million loss resulting from the mark-to-market of outstanding hedge positions compared to an adjusted net loss of $9.8 million, or a loss of $0.05 per share, for the second quarter of 2017 which excludes $3.4 million of gains resulting from the mark-to-market of outstanding hedge positions. The increase in the adjusted net loss is due to the sale of the Company's West Edmund Hunton Lime Unit ("WEHLU") assets in February 2018 coupled with increased interest and depreciation, depletion and amortization expense. (See the accompanying reconciliation of the non-GAAP financial measure adjusted net loss at the end of this news release.)

Adjusted earnings before interest, income taxes, depreciation, depletion and amortization ("adjusted EBITDA") (non-GAAP) for the second quarter of 2018 decreased 26% to $7.3 million compared to $9.8 million for the second quarter of 2017 and decreased 40% sequentially from $12.0 million for the first quarter of 2018. The sequential decline in adjusted EBITDA was primarily due to the sale of the Company's WEHLU assets. (See the accompanying reconciliation of the non-GAAP financial adjusted EBITDA at the end of this news release.)

Revenues from oil, condensate, natural gas and natural gas liquids ("NGLs"), before the effects of commodity derivatives contracts, totaled $19.5 million in the second quarter of 2018, a 13% increase from $17.3 million in the second quarter of 2017 and a 26% decrease from $26.4 million in the first quarter of 2018. The increase from the second quarter of 2017 in oil, condensate, natural gas and NGLs revenues primarily resulted from a 21% increase in equivalent product pricing, partially offset by a 7% decrease in equivalent production volumes primarily due to the sale of the Company's WEHLU assets. The decrease from first quarter 2018 revenues was due to a 6% decrease in equivalent product pricing and a 22% decrease in equivalent production volumes due to the sale of the WEHLU assets. Second quarter 2018 oil, condensate, natural gas and NGLs revenues were net of transportation, treating and gathering costs of $1.2 million pursuant to current authoritative accounting guidance.

Commodity derivative contracts settled during the second quarter of 2018 resulted in a $3.1 million decrease in revenue compared to a $2.0 million increase in revenues in the second quarter of 2017. For details on Gastar's current hedging position, please see our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed today with the United States Securities and Exchange Commission (the "SEC").

The following table provides a summary of Gastar's total net production volumes and overall average commodity prices for the three and six months ended June 30, 2018 and 2017:

                                For the Three Months Ended        For the Six Months Ended

                                         June 30,                        June 30,
                                         --------                        --------

                                                      2018            2017                    2018 2017
                                                      ----            ----                    ---- ----


    Net Production:

    Oil and condensate (MBbl)                                 241                             277          583    527

    Natural gas (MMcf)                                      1,075                             923        2,138  1,785

    NGLs (MBbl)                                                99                             128          243    245

    Total net production (MBoe)                               519                             559        1,183  1,070

    Net Daily production:

    Oil and condensate (MBbl/d)                               2.6                             3.0          3.2    2.9

    Natural gas (MMcf/d)                                     11.8                            10.1         11.8    9.9

    NGLs (MBbl/d)                                             1.1                             1.4          1.3    1.4

    Total net daily production
     (MBoe/d)                                                 5.7                             6.1          6.5    5.9

    Average sales price per
     unit(1):

    Oil and condensate per Bbl,
     including impact of
     hedging activities (2)                                $55.44                          $52.21       $55.31 $53.31

    Oil and condensate per Bbl,
     excluding impact of
     hedging activities                                    $66.80                          $45.94       $63.52 $47.28

    Natural gas per Mcf,
     including impact of
     hedging activities (2)                                 $1.44                           $2.51        $1.84  $2.85

    Natural gas per Mcf,
     excluding impact of
     hedging activities                                     $1.35                           $2.54        $1.70  $2.76

    NGLs per Bbl, including
     impact of hedging
     activities (2)                                        $14.73                          $19.41       $18.01 $21.74

    NGLs per Bbl, excluding
     impact of hedging
     activities                                            $19.58                          $17.02       $21.48 $19.45

    Average sales price per
     Boe, including impact of
     hedging activities(1)(2)                              $31.49                          $34.49       $34.32 $36.02

    Average sales price per
     Boe, excluding impact of
     hedging activities(1)                                 $37.51                          $30.88       $38.82 $32.37


    Lease operating expense per
     Boe                                                    $9.19                           $9.20       $10.38  $9.55
    _____________________________

    (1)              Average sales price per unit for 2018 are net of transportation,
                     treating and gathering costs, which were previously reported
                     separately as expenses.

    (2)              The impact of hedging includes only the gain (loss) on commodity
                     derivative contracts settled during the periods presented.

The following table provides a summary of Gastar's Mid-Continent STACK Play production volumes and average commodity prices, excluding the sale of our WEHLU assets, for the three and six months ended June 30, 2018 and 2017:

                                        For the Three Months Ended        For the Six Months Ended

                                                 June 30,                        June 30,
                                                 --------                        --------

                                                              2018            2017                    2018 2017
                                                              ----            ----                    ---- ----

    STACK Play (excludes WEHLU)

    Net Production:

    Oil and condensate (MBbl)                                         241                             125          502    224

    Natural gas (MMcf)                                              1,075                             489        1,894    923

    NGLs (MBbl)                                                        99                              54          195    101

    Total net production (MBoe)                                       519                             260        1,013    479

    Net Daily Production:

    Oil and condensate (MBbl/d)                                       2.6                             1.4          2.8    1.2

    Natural gas (MMcf/d)                                             11.8                             5.4         10.5    5.1

    NGLs (MBbl/d)                                                     1.1                             0.6          1.1    0.6

    Total net daily production (MBoe/d)                               5.7                             2.9          5.6    2.6

    Average sales price per unit(1):

    Oil and condensate (per Bbl)                                   $66.81                          $46.24       $63.90 $47.36

    Natural gas (per Mcf)                                           $1.35                           $2.76        $1.58  $2.88

    NGLs (per Bbl)                                                 $19.58                          $18.32       $21.04 $20.76

    Average sales price per Boe(1)                                 $37.51                          $31.15       $38.68 $32.09


    Lease operating expense per Boe                                 $9.19                           $9.70        $9.97  $9.76
    _____________________________

    (1)              Excludes the impact of hedging activities.  Average sales price per
                     unit for 2018 are net of transportation, treating and gathering
                     costs, which were previously reported separately as expenses

STACK Play production for the second quarter of 2018 consisted of approximately 66% liquids, (comprised of 46% oil and 20% NGLs), down from 72% and 69% liquids in the first quarter of 2018 and second quarter of 2017, respectively. The percentage of liquids as a component of production in the second quarter of 2018 was down sequentially due to certain new wells brought online during the second quarter of 2018 producing significantly higher volumes of natural gas.

General and administrative ("G&A") expense was $4.9 million in the second quarter of 2018 compared to $4.6 million in the second quarter of 2017 and $9.0 million in the first quarter of 2018. The decrease in second quarter 2018 G&A expense compared to first quarter 2018 was primarily due to severance costs incurred during the first quarter of 2018. G&A expense for the second quarter of 2018 included $1.2 million of non-cash stock-based compensation expense, versus $1.2 million in the second quarter of 2017 and $1.7 million in the first quarter of 2018. Excluding non-cash stock based compensation, cash G&A expense per Boe for the second quarters of 2018 and 2017 and the first quarter of 2018, excluding severance costs, were $7.10, $6.06 and $5.57, respectively.

During the second quarter of 2018, Gastar recorded an impairment of oil and natural gas properties of approximately $18.0 million due to the downward revision of its proved reserve quantities. The downward revision was primarily associated with the decision to reclassify proved undeveloped reserves to unproved reserves due to the uncertainty regarding the timing and availability of funding required to develop these reserves.

Exploration of Strategic Alternatives

As previously reported, the Company's management and Board of Directors (the "Board") are working closely with the Company's financial and legal advisors to consider potential strategic transactions, including financing alternatives and sale or merger transactions and is encouraging proposals from existing stakeholders and interested third-parties. The Company has formed a special committee consisting of directors not affiliated with Ares (defined below), including Jerry Schuyler, Gastar's Interim Chief Executive Officer and Board Chairman, and Board members Randolph Coley and Harry Quarls, who, along with the advisors, are exploring a wide range of strategic alternatives for the Company's future, including a sale, business combination or strategic merger and/or restructuring of its balance sheet.

On July 20, 2018, the Company received a non-binding preliminary term sheet from funds affiliated with Ares Management LLC ("Ares") proposing a potential restructuring transaction through a sale or a court-approved bankruptcy sale process or a Chapter 11 plan of reorganization. The Company continues to review and evaluate the Ares proposal, and is open to and will similarly evaluate any other proposals from other stakeholders or third-parties. Additionally, the Company intends to distribute a process letter to prospective bidders and investors in the coming weeks that provides additional details regarding the Company's financial restructuring process, including key deadlines. The process letter and other information related to the Company's financial restructuring process will be available on the Company's Investor Relations website at https://ir.gastar.com/investor-relations.

Mr. Schuyler added, "Through this process, our Board is committed to evaluating strategic alternatives in an effort to maximize value for our stakeholders while simultaneously supporting the Company's management and employees."

The Company may not comment further regarding this process unless a specific transaction or other alternative is approved by the Board, this process is concluded or it is otherwise determined that further disclosure is appropriate or required by law. The Company cannot assure you that it will be able to achieve a transaction on favorable terms or at all.

Operations Review and Update

During the second quarter of 2018, through its one-rig drilling program, Gastar spud four gross (3.7 net) operated Osage wells and two gross (1.9 net) operated Meramec wells and completed five gross (4.9 net) Osage operated wells using its new 35-stage completion design. The Company also participated in numerous third-party wells across its highly contiguous, 69,400 net acre STACK Play acreage position. This position is approximately 84% operated and 73% held by production.

The Company recently elected to suspend its operated drilling program and release the rig to allow time to fully analyze results of its 35-stage completion design as well as preserve capital for other cash needs, including but not limited to debt service while all strategic alternatives are considered or a possible restructuring of its debt and equity. The Company intends to continue to participate in select non-operated wells and renew certain leases to preserve its STACK Play acreage position. The Company believes it needs to consummate a substantial financing, refinancing or other financial restructuring transaction in the relative near term to re-engage in normal operated drilling activities.

Capital Budget

Gastar's capital expenditures in the second quarter of 2018 totaled $42.0 million, comprised of $32.8 million for drilling, completions and infrastructure costs, $6.0 million for unproved acreage extensions, renewals and additions and $3.2 million for other capitalized costs resulting in year-to-date total capital expenditures of $76.8 million. With the suspension of the operated drilling program in August 2018 and anticipated completion of five operated wells, capital expenditures for the remainder of 2018 are estimated to total $45.3 million, comprised of $34.2 million for drilling, completions and infrastructure costs, $6.2 million for unproved acreage extensions, renewals and additions and $4.9 million for other capitalized costs. It is unlikely that the Company could materially reduce capital expenditures further without creating the risk for deterioration of the Company's core business.

Guidance for Third Quarter 2018 and Full-Year 2018

Our guidance for the third quarter and full-year 2018, excluding WEHLU results, is presented in the table below and represents the Company's best estimate of the range of likely future results. Guidance could be affected by the factors described below in "Forward Looking Statements."

    Production                                  Third Quarter            Full-Year 2018

                                                                    2018
    ---                                                             ----


    Net average daily (MBoe/d)(1)                 5.2 - 5.6                5.5 - 5.8

    Liquids percentage                                         66% - 70%                67% - 70%


    Cash Operating Expenses
    -----------------------

    Production taxes (% of production revenues)              5.3% - 5.8%              4.3% - 4.8%

    Direct lease operating ($/Boe)                         $9.20 - $9.70             $9.00 - $9.60

    Cash general & administrative ($/Boe)(2)               $5.30 - $5.70             $5.90 - $6.40
    ________________

    (1)              Based on equivalent of 6 thousand
                     cubic feet (Mcf) of natural gas to
                     one barrel of oil, condensate or
                     NGLs.

    (2)              Excludes costs associated with the
                     strategic alternatives process.

Mid-Year 2018 Reserve Update

SEC proved reserve estimates as of June 30, 2018 totaled 10.5 MMBoe, a 76% decrease over year-end 2017 proved reserves, primarily due to the sale of 19.8 MMBoe of proved reserves associated with the Company's WEHLU assets in February 2018 and the reclassification of approximately 14.8 MMBoe of proved undeveloped reserves to unproved reserves due to the uncertainty regarding the timing and availability of funding required to develop these reserves. The proved undeveloped reserves that were reclassified to unproved remain economically producible at current commodities prices, and the Company may report proved undeveloped reserves in the future if it determines that it has the financial capability to execute a development plan. The mid-year 2018 reserves were 93% proved developed and comprised of 4.2 million barrels of crude oil and condensate, 2.6 million barrels of NGLs and 22.1 billion cubic feet of natural gas.

The pre-tax SEC-priced present value of future cash flows of reserve estimates as of June 30, 2018, discounted at 10% ("PV-10") (a non-GAAP financial measure defined below in "Information on Reserves and PV-10 Value"), was $124.9 million, a 57% decrease as compared to year-end 2017 primarily as a result of the sale of the WEHLU assets and lower proved undeveloped reserve volumes. In accordance with SEC regulations, estimates of proved reserves as of June 30, 2018 were calculated using the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period July 1, 2017 through June 30, 2018. For oil, the average 12-month West Texas Intermediate price utilized was $57.67 per barrel, compared to $51.34 per barrel for year-end 2017 SEC proved reserves, and for natural gas, the average 12-month Henry Hub price utilized was $2.92 per million British thermal unit ("MMBtu"), compared to $2.98 per MMBtu for year-end 2017 SEC proved reserves.

For a discussion of PV-10 and the standardized measure of future net cash flows, see "Information on Reserves and PV-10 Value" below.

Conference Call

Gastar has scheduled a conference call for 9:00 a.m. Eastern Time (8:00 a.m. Central Time) on Friday, August 10, 2018. Investors may participate in the call either by phone or audio webcast.

    By Phone:    Dial 1-412-902-0030 at least 10 minutes before the
                 call. A telephone replay will be available through
                 August 24th by dialing 1-201-612-7415 and using the
                 conference ID: 13682045.


    By Webcast:  Visit the Investor Relations page of Gastar's website
                 at www.gastar.com under "Events & Presentations."
                 Please log on a few minutes in advance to register
                 and download any necessary software. A replay will
                 be available shortly after the call.
                -----------------------------------------------------

For more information, please contact Donna Washburn at Dennard-Lascar Associates at 713-529-6600 or e-mail dwashburn@DennardLascar.com.

About Gastar Exploration

Gastar Exploration Inc. is a pure-play Mid-Continent independent energy company engaged in the exploration, development and production of oil, condensate, natural gas and natural gas liquids in the United States. Gastar's principal business activities include the identification, acquisition and subsequent exploration and development of oil and natural gas properties with an emphasis on unconventional reserves, such as shale resource plays. Gastar holds a concentrated acreage position in the normally pressured oil window of the STACK Play, an area of central Oklahoma which is home to multiple oil and natural gas-rich reservoirs including the Oswego limestone, Meramec and Osage bench formations within the Mississippi Lime, the Woodford shale and Hunton limestone formations. For more information, visit Gastar's website at www.gastar.com.

Information on Reserves and PV-10 Value

For the mid-year reserves at June 30, 2018 and year ended December 31, 2017, future cash inflows were computed using the 12-month un-weighted arithmetic average of the first-day-of-the-month prices for natural gas and oil (the "benchmark base prices") adjusted by lease in accordance with sales contracts and for energy content, quality, transportation, compression and gathering fees and regional price differentials, relating to the Company's proved reserves. Benchmark base prices are held constant in accordance with SEC guidelines for the life of the wells.

PV-10 represents the present value, discounted at 10% per annum, of estimated future net revenue before income tax of our estimated proved reserves. PV-10 is a non-GAAP financial measure as defined by the SEC. We believe that the presentation of PV-10 is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our reserves prior to taking into account corporate future income taxes and our current tax structure. We further believe investors and creditors use PV-10 as a basis for comparison of the relative size of our reserves as compared with other companies.

The financial measure most directly comparable to PV-10 is the standardized measure of future net cash flows ("Standardized Measure") which takes into account future income taxes and our current tax structure. As a result of our current net operating tax loss position, no future income taxes are anticipated and the PV-10 value shown should be reflective of our Standardized Measure.

The Company's 2018 mid-year and 2017 year-end total proved reserves estimates were prepared by Wright & Company, Inc.

Forward Looking Statements

This news release includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements give our current expectations, opinion, belief or forecasts of future events and performance. A statement identified by the use of forward looking words including "may," "expects," "projects," "anticipates," "plans," "believes," "estimate," "will," "should," and certain of the other foregoing statements may be deemed forward-looking statements. Although Gastar believes that the expectations reflected in such forward-looking statements are reasonable, these statements involve risks and uncertainties that may cause actual future activities and results to be materially different from those suggested or described in this news release. These include risks inherent in natural gas and oil drilling and production activities, including risks with respect to continued low or further declining prices for natural gas and oil that could result in further downward revisions to the value of proved reserves or otherwise cause Gastar to further delay or suspend planned drilling and completion operations or reduce production levels which would adversely impact cash flow; risks relating to the availability of capital to fund drilling operations that can be adversely affected by debt service obligations, adverse drilling results, production declines and continued low or further declining prices for natural gas and oil; risks of fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpected formation pressures, environmental hazards, and other operating and production risks, which may temporarily or permanently reduce production or cause initial production or test results to not be indicative of future well performance or delay the timing of sales or completion of drilling operations; delays in receipt of drilling permits; risks relating to unexpected adverse developments in the status of properties; risks relating to the absence or delay in receipt of government approvals or third-party consents; risks relating to our ability to integrate acquired assets with ours and to realize the anticipated benefits from such acquisitions; risks associated with engagement in the exploration of strategic alternatives; and other risks described in Gastar's Annual Report on Form 10-K and other filings with the SEC, available at the SEC's website at www.sec.gov. Our actual sales production rates can vary considerably from tested initial production rates depending upon completion and production techniques and our primary areas of operations are subject to natural steep decline rates. In addition, production information from our recently completed wells completed using our Gen 3 design is based on limited flow back history and therefore may not be fully indicative of sustained production rates or predictive of ultimate hydrocarbon recoveries. By issuing forward looking statements based on current expectations, opinions, views or beliefs, Gastar has no obligation and, except as required by law, is not undertaking any obligation, to update or revise these statements or provide any other information relating to such statements.

Targeted expectations and guidance for the third quarter and full-year of 2018 are based upon the current capital expenditures budget planned for the remainder of 2018, which includes the Company's election to suspend its operated drilling program to, among other things, preserve capital for other cash needs, including, but not limited to, debt service while all strategic alternatives are considered or a possible restructuring of its debt and equity is completed. The budget for the remainder of 2018 may be subject to further revision and reevaluation dependent upon future developments, including changes in commodity prices, drilling results, our liquidity position, availability of crews, supplies and production capacity, weather delays and significant changes in drilling costs.

Unless otherwise stated herein, equivalent volumes of production are based upon an energy equivalent ratio of six Mcf of natural gas to each barrel of liquids (oil, condensate and NGLs), which ratio is not reflective of relative value. Our NGLs are sold as part of our wet gas subject to an incremental NGLs pricing formula based upon a percentage of NGLs extracted from our wet gas production. Our reported production volumes reflect incremental post-processing NGLs volumes and residual gas volumes with which we are credited under our sales contracts.

- Financial Tables Follow -

                                                                 GASTAR EXPLORATION INC.

                                                          CONSOLIDATED STATEMENTS OF OPERATIONS


                                               For the Three Months Ended                           For the Six Months Ended

                                                        June 30,                                            June 30,
                                                        --------                                            --------

                                                2018                       2017                          2018                    2017
                                                ----                       ----                          ----                    ----

                                                         (in thousands, except share and per share data)

    REVENUES:

    Oil and condensate                                       $16,079                                 $12,744                                $37,061                  $24,934

    Natural gas                                              1,451                                   2,345                                  3,632                    4,933

    NGLs                                                     1,948                                   2,179                                  5,223                    4,770
                                                             -----                                   -----                                  -----                    -----

    Total oil and condensate, natural gas and
     NGLs revenues                                          19,478                                  17,268                                 45,916                   34,637

    (Loss) gain on commodity derivatives
     contracts                                             (9,256)                                  5,378                               (14,785)                   6,678
                                                            ------                                   -----                                -------                    -----

    Total revenues and other (loss) gain                    10,222                                  22,646                                 31,131                   41,315

    EXPENSES:

    Production taxes                                           614                                     469                                  1,603                      954

    Lease operating expenses                                 4,771                                   5,146                                 12,280                   10,218

    Transportation, treating and gathering         -                                    440                                       -                       751

    Depreciation, depletion and amortization                 7,588                                   6,051                                 16,566                   10,703

    Impairment of oil and natural gas
     properties                               17,993                                       -                                 17,993                          -

    Accretion of asset retirement obligation                    40                                      58                                     96                      109

    General and administrative expense                       4,861                                   4,591                                 13,829                    8,415

    Total expenses                                          35,867                                  16,755                                 62,367                   31,150
                                                            ------                                  ------                                 ------                   ------

    (LOSS) INCOME FROM OPERATIONS                         (25,645)                                  5,891                               (31,236)                  10,165

    OTHER (EXPENSE) INCOME:

    Interest expense                                      (10,200)                                (8,736)                              (20,137)                (19,585)

    Loss on early extinguishment of debt           -                                      -                                      -                  (12,172)

    Investment income and other                                 23                                      66                                     40                      115

    LOSS BEFORE PROVISION FOR INCOME TAXES                (35,822)                                (2,779)                              (51,333)                (21,477)

    Provision for income taxes                     -                                      -                                      -                         -
                                                 ---                                    ---                                    ---                       ---

    NET LOSS                                              (35,822)                                (2,779)                              (51,333)                (21,477)

    Dividends on preferred stock                           (3,618)                                (3,619)                               (7,236)                 (7,237)

    Undeclared cumulative dividends on
     preferred stock                               -                                      -                                      -                         -
                                                 ---                                    ---                                    ---                       ---

    NET LOSS ATTRIBUTABLE TO COMMON
     STOCKHOLDERS                                          $(39,440)                               $(6,398)                             $(58,569)               $(28,714)
                                                            ========                                 =======                               ========                 ========

    NET LOSS PER SHARE OF COMMON STOCK
     ATTRIBUTABLE TO COMMON STOCKHOLDERS:

    Basic                                                    $(0.19)                                $(0.03)                               $(0.28)                 $(0.16)
                                                              ======                                  ======                                 ======                   ======

    Diluted                                                  $(0.19)                                $(0.03)                               $(0.28)                 $(0.16)
                                                              ======                                  ======                                 ======                   ======

    WEIGHTED AVERAGE SHARES OF COMMON STOCK
     OUTSTANDING:

    Basic                                              211,744,943                             199,547,446                            210,839,194              181,430,409

    Diluted                                            211,744,943                             199,547,446                            210,839,194              181,430,409

                                             GASTAR EXPLORATION INC.

                                           CONSOLIDATED BALANCE SHEETS


                                                                June 30,                   December 31,

                                                                     2018                           2017
                                                                     ----                           ----

                                                               (in thousands, except share and per
                                                                            share data)

                             ASSETS

    CURRENT ASSETS:

    Cash and cash equivalents                                                    $51,072                            $13,266

    Accounts receivable, net of allowance for doubtful
     accounts of $1,953                                                         18,156                             38,575

    Commodity derivative contracts                                                 140                              1,370

    Prepaid expenses                                                               640                                960
                                                                                   ---                                ---

    Total current assets                                                        70,008                             54,171
                                                                                ------                             ------

    PROPERTY, PLANT AND EQUIPMENT:

    Oil and natural gas properties, full cost method of
     accounting:

    Unproved properties, excluded from amortization                            141,027                            131,955

    Proved properties                                                        1,313,792                          1,344,329
                                                                             ---------                          ---------

    Total natural gas and oil properties                                     1,454,819                          1,476,284

    Furniture and equipment                                                      3,604                              3,838
                                                                                 -----                              -----

    Total property, plant and equipment                                      1,458,423                          1,480,122

    Accumulated depreciation, depletion and
     amortization                                                          (1,189,332)                       (1,155,027)
                                                                            ----------                         ----------

    Total property, plant and equipment, net                                   269,091                            325,095

    OTHER ASSETS:

    Restricted cash                                                                 25                                370

    Advances to operators                                                           79                                 82

    Other                                                               -                                405
                                                                      ---                                ---

    Total other assets                                                             104                                857
                                                                                   ---                                ---

    TOTAL ASSETS                                                                $339,203                           $380,123
                                                                                ========                           ========

             LIABILITIES AND STOCKHOLDERS' DEFICIT

    CURRENT LIABILITIES:

    Accounts payable                                                             $13,026                            $24,382

    Revenue payable                                                             16,756                             11,823

    Accrued interest                                                             7,558                              7,298

    Accrued drilling and operating costs                                        10,258                              9,381

    Advances from non-operators                                                    757                              1,445

    Commodity derivative contracts                                              11,688                              4,416

    Commodity derivative premium payable                                            68                                135

    Other accrued liabilities                                                    5,010                              2,706
                                                                                 -----                              -----

    Total current liabilities                                                   65,121                             61,586
                                                                                ------                             ------

    LONG-TERM LIABILITIES:

    Long-term debt                                                             362,752                            342,952

    Commodity derivative contracts                                               4,182                              2,572

    Asset retirement obligation                                                  2,431                              4,841
                                                                                 -----                              -----

    Total long-term liabilities                                                369,365                            350,365
                                                                               -------                            -------

    Commitments and contingencies

    STOCKHOLDERS' DEFICIT:

    Preferred stock, 40,000,000 shares authorized

    Series A Preferred Stock, par value $0.01 per
     share; 10,000,000 shares  designated; 4,045,000
     shares issued and outstanding at June 30, 2018 and
     December 31, 2017, respectively, with liquidation
     preference of $25.00 per share                                                 41                                 41

    Series B Preferred Stock, par value $0.01 per
     share; 10,000,000 shares designated; 2,140,000
     shares issued and outstanding at June 30, 2018 and
     December 31, 2017, respectively, with liquidation
     preference of $25.00 per share                                                 21                                 21

    Common stock, par value $0.001 per share;
     800,000,000 shares authorized at June 30, 2018 and
     December 31, 2017, respectively; 219,175,611 and
     218,874,418 shares issued and outstanding at June
     30, 2018 and December 31, 2017, respectively                                  219                                219

    Additional paid-in capital                                                 820,699                            819,554

    Accumulated deficit                                                      (916,263)                         (851,663)
                                                                              --------                           --------

    Total stockholders' deficit                                               (95,283)                          (31,828)
                                                                               -------                            -------

    TOTAL LIABILITIES AND STOCKHOLDERS'
     DEFICIT                                                                    $339,203                           $380,123
                                                                                ========                           ========

                                          GASTAR EXPLORATION INC.

                                   CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                For the Six Months Ended

                                                                        June 30,
                                                                        --------

                                                                  2018                   2017
                                                                  ----                   ----

                                                                   (in thousands)

    CASH FLOWS FROM OPERATING ACTIVITIES:

    Net loss                                                             $(51,333)                       $(21,477)

    Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:

    Depreciation, depletion and amortization                              16,566                           10,703

    Impairment of natural gas and oil properties                          17,993                                -

    Stock-based compensation                                               2,896                            2,199

    Total loss (gain) on commodity derivatives
     contracts                                                            14,785                          (6,678)

    Cash settlements of matured commodity
     derivative contracts, net                                           (3,446)                           3,553

    Cash premiums paid for commodity derivatives
     contracts                                                             (552)                               -

    Amortization of deferred financing costs and
     debt discount                                                         6,518                            4,927

    Paid-in-kind interest                                                 13,282                                -

    Accretion of asset retirement obligation                                  96                              109

    Loss on sale of furniture and equipment                                    7                                -

    Loss on early extinguishment of debt                             -                           12,172

    Changes in operating assets and liabilities:

    Accounts receivable                                                   19,678                         (29,115)

    Prepaid expenses                                                         232                               30

    Accounts payable and accrued liabilities                               2,529                            6,983
                                                                           -----                            -----

    Net cash provided by (used in) operating
     activities                                                           39,251                         (16,594)
                                                                          ------                          -------

    CASH FLOWS FROM INVESTING ACTIVITIES:

    Development and purchase of oil and natural gas
     properties                                                         (83,405)                        (48,274)

    Acquisition of oil and natural gas properties                          (144)                        (54,462)

    Proceeds from sale of oil and natural gas
     properties                                                           96,304                           26,780

    Application of proceeds from non-operators                             (688)                           (609)

    Advances to operators                                                   (15)                               -

    Purchase of furniture and equipment                                     (30)                           (393)
                                                                             ---                             ----

    Net cash provided by (used in) investing
     activities                                                           12,022                         (76,958)
                                                                          ------                          -------

    CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from term loan                                          -                          250,000

    Proceeds from convertible notes                                  -                          200,000

    Repayment of senior secured notes                                -                        (325,000)

    Repayment of revolving credit facility                           -                         (84,630)

    Loss on early extinguishment of debt                             -                          (7,011)

    Proceeds from issuance of common shares, net of
     issuance costs                                                  -                           56,367

    Dividends on preferred stock                                        (12,061)                        (18,092)

    Deferred financing charges                                       -                          (9,971)

    Decrease (increase) in restricted cash                                   345                            (369)

    Tax withholding related to restricted stock
     award vestings                                                      (1,240)                           (585)

    Other                                                                  (511)                               0
                                                                            ----                              ---

    Net cash (used in) provided by financing
     activities                                                         (13,467)                          60,709
                                                                         -------                           ------

    NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                                          37,806                         (32,843)

    CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                        13,266                           71,529
                                                                          ------                           ------

    CASH AND CASH EQUIVALENTS, END OF
     PERIOD                                                                $51,072                          $38,686
                                                                           =======                          =======

NON-GAAP FINANCIAL INFORMATION AND RECONCILIATION

We use both GAAP and certain non-GAAP financial measures to assess performance. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Our management believes that these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate our financial performance using the same measures as management. These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts. A reconciliation is provided below outlining the differences between these non-GAAP measures and their most directly comparable financial measure calculated in accordance with GAAP.

                                          Reconciliation of Net Loss to Adjusted Net Loss:


                                      For the Three Months Ended                           For the Six Months Ended

                                               June 30,                                            June 30,
                                               --------                                            --------

                                       2018                       2017                          2018                2017
                                       ----                       ----                          ----                ----

                                                (in thousands, except share and per share data)

    NET LOSS ATTRIBUTABLE TO COMMON
     STOCKHOLDERS                                 $(39,440)                               $(6,398)                       $(58,569)   $(28,714)

    SPECIAL ITEMS:

    Losses (gains) related to the
     change in mark to market value
     for outstanding commodity
     derivatives contracts                            6,133                                 (3,356)                           9,459      (2,774)

    Impairment of oil and natural gas
     properties                                      17,993                                       -                          17,993            -

    Loss on early extinguishment of
     debt                                                 -                                      -                               -      12,172

    Non-recurring severance costs                         -                                      -                           3,545            -


    ADJUSTED NET LOSS ATTRIBUTABLE TO
     COMMON STOCKHOLDERS                          $(15,314)                               $(9,754)                       $(27,572)   $(19,316)
                                                   ========                                 =======                         ========     ========


    ADJUSTED NET LOSS PER SHARE OF
     COMMON STOCK ATTRIBUTABLE TO
     COMMON STOCKHOLDERS:

    Basic                                           $(0.07)                                $(0.05)                         $(0.13)     $(0.11)
                                                     ======                                  ======                           ======       ======

    Diluted                                         $(0.07)                                $(0.05)                         $(0.13)     $(0.11)
                                                     ======                                  ======                           ======       ======

    WEIGHTED AVERAGE SHARES OF COMMON
     STOCK

    Basic                                       211,744,943                             199,547,446                      210,839,194  181,430,409

    Diluted                                     211,744,943                             199,547,446                      210,839,194  181,430,409

                                                    Reconciliation of Cash Flows before Working Capital Changes and to Adjusted Cash Flows from Operations:


                                              For the Three Months Ended                             For the Six Months Ended

                                                       June 30,                                             June 30,
                                                       --------                                             --------

                                                                    2018                                 2017                                  2018         2017
                                                                    ----                                 ----                                  ----         ----

                                                                          (in thousands)

    CASH FLOWS FROM OPERATING ACTIVITIES:

    Net loss                                                                             $(35,822)                                       $(2,779)                $(51,333)   $(21,477)

    Adjustments to reconcile net loss to net
     cash provided by operating activities:

    Depreciation, depletion and amortization                                                 7,588                                           6,051                    16,566       10,703

    Impairment of oil and natural gas
     properties                                                                             17,993                                               -                   17,993            -

    Stock-based compensation                                                                 1,172                                           1,203                     2,896        2,199

    Mark to market of commodity derivatives
     contracts:

    Total loss (gain) on commodity
     derivatives contracts                                                                   9,256                                         (5,378)                   14,785      (6,678)

    Cash settlements of matured commodity
     derivatives contracts, net                                                            (2,099)                                          1,870                   (3,446)       3,553

    Cash premiums paid for commodity
     derivatives contracts                                                                       -                                              -                    (552)           -

    Amortization of deferred financing costs
     and debt discount                                                                       3,341                                           3,217                     6,518        4,927

    Paid in kind interest                                                                    6,653                                               -                   13,282            -

    Accretion of asset retirement obligation                                                    40                                              58                        96          109

    Loss on sale of assets                                                                       7                                               -                        7            -

    Loss on early extinguishment of debt                                                         -                                              -                        -      12,172
                                                                                               ---                                            ---                      ---      ------

    Cash flows from operations before working
     capital changes                                                                         8,129                                           4,242                    16,812        5,508

    Dividends on preferred stock                                                           (3,618)                                        (3,619)                  (7,236)     (7,237)

    Paid in kind interest                                                                  (6,653)                                              -                 (13,282)           -

    Non-recurring severance costs                                                                -                                              -                    3,545            -

    Adjusted cash flows (used in) provided by
     operations                                                                           $(2,142)                                           $623                    $(161)    $(1,729)
                                                                                           =======                                            ====                     =====      =======

             Reconciliation of Net Loss to Adjusted Earnings Before Interest, Income Taxes, Depreciation, Depletion and Amortization ("Adjusted EBITDA"):


                                                           For the Three Months Ended                       For the Six Months Ended

                                                                    June 30,                                        June 30,
                                                                    --------                                        --------

                                                              2018                   2017                     2018                    2017
                                                              ----                   ----                     ----                    ----

                                                                              (in thousands)

    NET LOSS ATTRIBUTABLE TO COMMON
     STOCKHOLDERS                                                    $(39,440)                          $(6,398)                          $(58,569)       $(28,714)

    Interest expense                                                    10,200                              8,736                              20,137           19,585

    Loss on early extinguishment of
     debt                                                                    -                                 -                                  -          12,172

    Depreciation, depletion and
     amortization                                                        7,588                              6,051                              16,566           10,703

    Impairment of oil and natural gas
     properties                                                         17,993                                  -                             17,993                -
                                                                        ------                                ---                             ------              ---

    EBITDA                                                             (3,659)                             8,389                             (3,873)          13,746

    Dividends on preferred stock                                         3,618                              3,619                               7,236            7,237

    Accretion of asset retirement
     obligation                                                             40                                 58                                  96              109

    Losses (gains) related to the
     change in mark to market value
     for outstanding commodity
     derivatives contracts                                               6,133                            (3,356)                              9,459          (2,774)

    Non-cash stock-based
     compensation expense                                                1,172                              1,203                               2,896            2,199

    Investment income and other                                           (23)                              (66)                               (40)           (115)

    Non-recurring severance costs                                            -                                 -                              3,545                -

    ADJUSTED EBITDA                                                     $7,281                             $9,847                             $19,319          $20,402
                                                                        ======                             ======                             =======          =======

Contacts:
Gastar Exploration Inc.
Michael A. Gerlich, Chief Financial Officer
713-739-1800 / mgerlich@gastar.com

Investor Relations Counsel:
Lisa Elliott, Dennard--Lascar Investor Relations
713-529-6600 / lelliott@DennardLascar.com

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SOURCE Gastar Exploration Inc.