Gastar Exploration Announces Third Quarter 2018 Results

HOUSTON, Nov. 14, 2018 /PRNewswire/ -- Gastar Exploration Inc. (OTC Pink: GSTCQ) ("Gastar" or the "Company") today reported financial and operating results for the three and nine months ended September 30, 2018. As previously reported and as disclosed in more detail below under the caption "Chapter 11 Filing", on October 31, 2018, the Company and its subsidiaries commenced Chapter 11 reorganization cases in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court").

Net loss attributable to Gastar's common stockholders for the third quarter of 2018 was $21.1 million, or a loss of $0.10 per share, compared to a third quarter 2017 net loss of $15.9 million, or a loss of $0.08 per share. Adjusted net loss attributable to common stockholders for the third quarter of 2018 was $13.8 million, or a loss of $0.07 per share, which excludes $5.4 million of strategic review and restructuring costs, $2.3 million of employee and management retention bonus, and a gain of $433,000 resulting from the mark-to-market of outstanding hedge positions. This compares to an adjusted net loss of $11.2 million, or a loss of $0.05 per share, for the third quarter of 2017 which excludes a $4.7 million loss resulting from the mark-to-market of outstanding hedge positions. The increase in the adjusted net loss is primarily due to a $1.4 million increase in depreciation, depletion and amortization resulting from the sale of the Company's West Edmund Hunton Lime Unit ("WEHLU") assets in February 2018 coupled with a $5.1 million decrease in commodity derivatives contracts settled during the respective quarters offset by a $3.3 million increase in total oil, condensate, natural gas and natural gas liquids revenues due to higher commodity prices. (See the accompanying reconciliation of the non-GAAP financial measure adjusted net loss to net loss attributable to common stockholders at the end of this news release.)

Adjusted earnings before interest, income taxes, depreciation, depletion and amortization ("adjusted EBITDA") (a non-GAAP financial measure) for the third quarter of 2018 decreased 20% to $8.3 million compared to $10.4 million for the third quarter of 2017 and increased 14% sequentially from $7.3 million for the second quarter of 2018. (See the accompanying reconciliation of the non-GAAP financial measure of 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 $21.5 million in the third quarter of 2018, an 18% increase from $18.2 million in the third quarter of 2017 and a 10% increase from $19.5 million in the second quarter of 2018. The increase from the third quarter of 2017 in oil, condensate, natural gas and NGLs revenues primarily resulted from a 23% increase in equivalent product pricing partially offset by a 4% decrease in equivalent production volumes primarily due to the sale of the Company's WEHLU assets. The increase from second quarter 2018 revenues was due to a 4% increase in equivalent product pricing coupled with a 6% increase in equivalent production volumes due to the impact of five well completions in the third quarter of 2018. Third quarter 2018 oil, condensate, natural gas and NGLs revenues were net of transportation, treating and gathering costs of $1.3 million pursuant to current authoritative accounting guidance.

Commodity hedges were in place for approximately 89% of our oil and condensate production, 40% of our natural gas production and 37% of our NGLs production for the third quarter of 2018. Commodity derivative contracts settled during the third quarter of 2018 resulted in a $3.4 million decrease in revenue compared to a $1.8 million increase in revenues in the third quarter of 2017. As previously announced, on October 26, 2018, the Company and its hedge counterparties entered into a hedge party restructuring support agreement to effectively terminate the Company's current hedge positions and replace such with new secured notes to be paid in monthly installments through December 2019.

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

                                       For                    For
                                                the                   the
                                               Three                 Nine
                                               Months               Months
                                                Ended                 Ended

                                           September 30,          September 30,



                                  2018                   2017                             2018       2017






     Net Production:


      Oil and condensate (MBbl)                   253                                 278            837        805



     Natural gas (MMcf)                        1,131                                 962          3,269      2,748



     NGLs (MBbl)                                 109                                 134            352        379


      Total net production (MBoe)                 550                                 572          1,733      1,642


      Net Daily production:


      Oil and condensate (MBbl/
       d)                                         2.8                                 3.0            3.1        3.0


      Natural gas (MMcf/d)                       12.3                                10.5           12.0       10.1



     NGLs (MBbl/d)                               1.2                                 1.5            1.3        1.4


      Total net daily production
       (MBoe/d)                                   6.0                                 6.2            6.3        6.0


      Average sales price per
       unit(1):


      Oil and condensate per Bbl,
       including impact of
       hedging activities (2)          $
           57.20                           $
      51.77      $
      55.88  $
      52.78


      Oil and condensate per Bbl,
       excluding impact of
       hedging activities              $
           68.86                           $
      46.56      $
      65.14  $
      47.03


      Natural gas per Mcf,
       including impact of
       hedging activities (2)           $
           1.86                            $
      2.69       $
      1.85   $
      2.80


      Natural gas per Mcf,
       excluding impact of
       hedging activities               $
           1.76                            $
      2.62       $
      1.72   $
      2.71


      NGLs per Bbl, including
       impact of hedging
       activities (2)                  $
           14.46                           $
      22.55      $
      16.91  $
      22.02


      NGLs per Bbl, excluding
       impact of hedging
       activities                      $
           19.26                           $
      20.64      $
      20.79  $
      19.87


      Average sales price per
       Boe, including impact of
       hedging activities(1)(2)        $
           32.99                           $
      34.96      $
      33.89  $
      35.65


      Average sales price per
       Boe, excluding impact of
       hedging activities(1)           $
           39.09                           $
      31.86      $
      38.90  $
      32.19




      Lease operating expense per
       Boe                              $
           9.94                           $
      10.80      $
      10.24   $
      9.98




              (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 nine months ended September 30, 2018 and 2017:

                                                        For
                                                               the
                                                                    Three
                                                                            Months
                                                                          
               Ended              For the Nine Months Ended

                                                            September 30,                   September 30,



                                               2018                              2017                                              2018       2017



                   STACK Play (excludes WEHLU)



     Net Production:


      Oil and condensate (MBbl)                                253                                                         144                755        368


      Natural gas (MMcf)                                     1,131                                                         605              3,025      1,528



     NGLs (MBbl)                                              109                                                          67                304        167


      Total net production (MBoe)                              550                                                         311              1,563        790


      Net Daily Production:


      Oil and condensate (MBbl/
       d)                                                      2.8                                                         1.6                2.8        1.3


      Natural gas (MMcf/d)                                    12.3                                                         6.6               11.1        5.6



     NGLs (MBbl/d)                                            1.2                                                         0.7                1.1        0.6


      Total net daily production
       (MBoe/d)                                                6.0                                                         3.4                5.7        2.9


      Average sales price per
       unit(1):


      Oil and condensate (per
       Bbl)                                         $
           68.86                                           $
              46.80          $
      65.56  $
      47.14


      Natural gas (per Mcf)                          $
           1.76                                            $
              2.56           $
      1.64   $
      2.75



     NGLs (per Bbl)                                $
           19.27                                           $
              20.52          $
      20.40  $
      20.67


      Average sales price per
       Boe(1)                                       $
           39.09                                           $
              30.98          $
      38.82  $
      31.66




      Lease operating expense per
       Boe                                           $
           9.94                                            $
              9.89           $
      9.96   $
      9.81




              (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 third quarter of 2018 consisted of approximately 66% liquids, (comprised of 46% oil and 20% NGLs), flat with the second quarter of 2018 and down from 68% in the third quarter of 2017.

General and administrative ("G&A") expense totaled $11.6 million in the third quarter of 2018 compared to $4.1 million in the third quarter of 2017 and $4.9 million in the second quarter of 2018. The increase in third quarter 2018 G&A expense compared to the prior periods was primarily due to strategic review and restructuring costs associated with our Chapter 11 bankruptcy filing, described below, including professional fees of approximately $5.4 million for the strategic review and restructuring process, $1.9 million of additional expense due to retention bonuses and increased legal fees of $862,000. G&A expense for the third quarter of 2018 also included $543,000 of non-cash stock-based compensation expense, versus $1.8 million in the third quarter of 2017 and $1.2 million in the second quarter of 2018. Excluding non-cash stock-based compensation, strategic review and restructuring costs and retention bonus expense, cash G&A expense per Boe for the third quarters of 2018 and 2017 and the second quarter of 2018, were $5.97, $3.98 and $4.96, respectively.

Chapter 11 Filing

As previously reported, on October 31, 2018, the Company and its subsidiaries commenced Chapter 11 cases in the Bankruptcy Court. The Company is seeking Chapter 11 relief to implement the terms of its previously announced restructuring support agreement (the "RSA") and corresponding prepackaged Chapter 11 plan of reorganization (the "Plan"). The restructuring has the support of the funds affiliated with Ares Management LLC, the Company's largest, and only, funded-debt creditor and largest common stockholder, as well as all other creditors entitled to vote to accept or reject the Plan.

Consistent with the RSA, the Company commenced solicitation of the Plan on October 26, 2018. Solicitation of the Plan concluded on October 30, 2018, with all creditors entitled to vote voting to accept the Plan. The Plan, which is subject to confirmation by the Bankruptcy Court, will leave trade creditors and other operational obligations unimpaired, eliminate more than $300 million of the Company's funded-debt obligations and preferred equity interests (OTC Pink: GSTPAQ and GSTPBQ), cancel existing common equity interests, and provide $100 million in new, committed financing to fund the Company's restructuring process and ongoing business operations.

The Company has filed various customary motions with the Bankruptcy Court in support of its financial restructuring. The Company currently intends to continue to pay employee wages and provide healthcare and other defined benefits without interruption in the ordinary course of business and to pay suppliers and vendors in full under normal terms provided on or after the Chapter 11 filing date.

The Bankruptcy Court has scheduled a hearing to consider confirmation of the Plan on December 20, 2018 (the "Confirmation Hearing"). The Company intends to complete a supplemental marketing process seeking proposal for transactions that are higher and better than the transactions contemplated by the Plan over the course of the next month, with a bid deadline of December 17, 2018. The Company intends to publicly disclose further details regarding the supplemental marketing process, including how interested parties may participate and make a proposal, at a future date. In the absence of a higher or better proposal, the Company intends to seek confirmation of the Plan at the Confirmation Hearing.

For more information regarding the Company's restructuring, please visit Gastar's website at http://www.gastar.com/restructuring

Capital Expenditures

Gastar's capital expenditures in the third quarter of 2018 totaled $32.6 million, comprised of $26.1 million for drilling, completions and infrastructure costs, $3.5 million for unproved acreage extensions, renewals and additions and $3.0 million of other capitalized costs. Due to the Company's Chapter 11 bankruptcy process, the Company's capital expenditure budget for the remainder of 2018 has not yet been determined and near-term capital expenditures are expected to be minimized accordingly.

Operations Review and Update

As previously reported, the Company suspended its operated one-rig drilling program in August 2018 and released the rig. During the third quarter of 2018, Gastar completed three gross (2.25 net) operated Osage wells and two gross (1.97 net) operated Meramec wells using its optimized "Generation 3" completion design. All five wells completed during the third quarter are currently on production. Gastar also installed [four] electric submersible pumps (ESPs) in select wells during the third quarter, leading to improved well results over the previous quarter.

The Company also participated in numerous third-party wells across its highly contiguous, 71,200 net acre STACK Play acreage position. This position is approximately 84% operated and 73% held by production. The Company intends to continue to participate in select non-operated wells and renew certain leases to preserve its STACK Play acreage position.

Conference Call

The Company will not host an earnings conference call for the third quarter of 2018. The Company's Quarterly Report on Form 10-Q for the period ended September 30, 2018 was filed today with the SEC reflecting these results.

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.

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 related to the Company's ability to successfully obtain confirmation of the Plan; 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 Generation 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.

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 Nine Months Ended

                                             
     
          September 30,                                                    
              
                September 30,



                                                                         2018                                              2017                                                  2018                    2017



                                                  
         
                (in thousands, except share and per share data)



     REVENUES:



     Oil and condensate                                                                       $
              17,436                                             $
              12,952          $
          54,497           $
          37,886



     Natural gas                                                                                           1,986                                                          2,519                   5,618                    7,452



     NGLs                                                                                                  2,092                                                          2,757                   7,315                    7,527



      Total oil and condensate, natural gas
       and NGLs revenues                                                                                   21,514                                                         18,228                  67,430                   52,865


      (Loss) gain on commodity derivatives
       contracts                                                                                          (2,925)                                                       (2,896)               (17,710)                   3,782



      Total revenues and other (loss) gain                                                                 18,589                                                         15,332                  49,720                   56,647



     EXPENSES:



     Production taxes                                                                                      1,131                                                            721                   2,734                    1,675



     Lease operating expenses                                                                              5,469                                                          6,178                  17,749                   16,396


      Transportation, treating and gathering                                                                                                                                436                                           1,187


      Depreciation, depletion and
       amortization                                                                                         7,460                                                          6,059                  24,026                   16,762


      Impairment of oil and natural gas
       properties                                                                                                                                                                               17,993


      Accretion of asset retirement
       obligation                                                                                              43                                                             62                     139                      171


      General and administrative expense                                                                   11,567                                                          4,067                  25,396                   12,482



     Total expenses                                                                                       25,670                                                         17,523                  88,037                   48,673



      (LOSS) INCOME FROM OPERATIONS                                                                       (7,081)                                                       (2,191)               (38,317)                   7,974



     OTHER (EXPENSE) INCOME:



     Interest expense                                                                                   (10,468)                                                      (10,159)               (30,605)                (29,744)


      Loss on early extinguishment of debt                                                                                                                                                                            (12,172)



     Investment income and other                                                                              22                                                             51                      62                      166


      LOSS BEFORE PROVISION FOR INCOME TAXES                                                             (17,527)                                                      (12,299)               (68,860)                (33,776)



     Provision for income taxes




     NET LOSS                                                                                           (17,527)                                                      (12,299)               (68,860)                (33,776)



     Dividends on preferred stock                                                                                                                                      (1,206)                (7,236)                 (8,443)


      Undeclared cumulative dividends on
       preferred stock                                                                                    (3,618)                                                       (2,412)                (3,618)                 (2,412)



      NET LOSS ATTRIBUTABLE TO COMMON
       STOCKHOLDERS                                                                          $
              (21,145)                                          $
              (15,917)       $
          (79,714)        $
          (44,631)



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



     Basic                                                                                    $
              (0.10)                                            $
              (0.08)         $
          (0.38)          $
          (0.23)




     Diluted                                                                                  $
              (0.10)                                            $
              (0.08)         $
          (0.38)          $
          (0.23)



      WEIGHTED AVERAGE SHARES OF COMMON
            STOCK OUTSTANDING:



     Basic                                                                                           212,192,850                                                    209,072,232             211,296,176              190,745,688



     Diluted                                                                                         212,192,850                                                    209,072,232             211,296,176              190,745,688

                                                                   
              
           GASTAR EXPLORATION INC.


                                                                 
              
           CONSOLIDATED BALANCE SHEETS




                                                                  September 30,                                        December 31,


                                                                                 2018                                           2017



                                                                      (in
                                                                    thousands,
                                                                      except
                                                          share
              
           and
                                                                 per share data)


            
              
                ASSETS



     CURRENT ASSETS:



     Cash and cash equivalents                                                                     $
              17,570                $
           13,266


      Accounts receivable, net of allowance for
       doubtful accounts of $1,953                                                                              20,906                         38,575



     Commodity derivative contracts                                                                                                           1,370



     Prepaid expenses                                                                                           2,302                            960




     Total current assets                                                                                      40,778                         54,171




     PROPERTY, PLANT AND EQUIPMENT:


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


      Unproved properties, excluded from amortization                                                          144,386                        131,955



     Proved properties                                                                                      1,343,162                      1,344,329




     Total natural gas and oil properties                                                                   1,487,548                      1,476,284



     Furniture and equipment                                                                                    3,615                          3,838




     Total property, plant and equipment                                                                    1,491,163                      1,480,122


      Accumulated depreciation, depletion and
       amortization                                                                                        (1,196,792)                   (1,155,027)



      Total property, plant and equipment, net                                                                 294,371                        325,095



     OTHER ASSETS:



     Restricted cash                                                                                               25                            370



     Advances to operators                                                                                         79                             82



     Other                                                                                                                                      405




     Total other assets                                                                                           104                            857




     TOTAL ASSETS                                                                                 $
              335,253               $
           380,123



                    LIABILITIES AND STOCKHOLDERS' DEFICIT



     CURRENT LIABILITIES:



     Accounts payable                                                                              $
              20,228                $
           24,382



     Revenue payable                                                                                           11,993                         11,823



     Accrued interest                                                                                           7,808                          7,298



     Accrued drilling and operating costs                                                                       8,841                          9,381



     Advances from non-operators                                                                                  623                          1,445



     Commodity derivative contracts                                                                            13,211                          4,416



     Commodity derivative premium payable                                                                                                       135



     Other accrued liabilities                                                                                  6,457                          2,706




     Total current liabilities                                                                                 69,161                         61,586




     LONG-TERM LIABILITIES:



     Long-term debt                                                                                           373,161                        342,952



     Commodity derivative contracts                                                                             2,634                          2,572



     Asset retirement obligation                                                                                2,577                          4,841




     Total long-term liabilities                                                                              378,372                        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
             September 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
             September 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
       September 30, 2018 and December 31, 2017,
       respectively; 
              218,933,504 and
       218,874,418 shares issued and outstanding at
               September 30, 2018 and December 31,
               2017, respectively                                                                                  219                            219



     Additional paid-in capital                                                                               821,229                        819,554



     Accumulated deficit                                                                                    (933,790)                     (851,663)




     Total stockholders' deficit                                                                            (112,280)                      (31,828)



      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                  $
              335,253               $
           380,123


                                                      
            
             GASTAR EXPLORATION INC.


                                                    
       
             CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                          For
              
                the
                                                                   Nine Months
                                                                       Ended

                                                                 September 30,



                                                                                    2018                          2017



                                                                 (in thousands)


      CASH FLOWS FROM OPERATING ACTIVITIES:



     Net loss                                                                                   $
          (68,860)      $
         (33,776)


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


      Depreciation, depletion and amortization                                                             24,026                16,762


      Impairment of natural gas and oil properties                                                         17,993



     Stock-based compensation                                                                              3,439                 3,990


      Mark to market of commodity derivatives
       contracts:


      Total loss (gain) on commodity derivatives
       contracts                                                                                           17,710               (3,782)


      Cash settlements of matured commodity
       derivative contracts, net                                                                          (6,196)                5,602


      Cash premiums paid for commodity derivatives
       contracts                                                                                            (552)


      Amortization of deferred financing costs and
       debt discount                                                                                       10,030                 8,218



     Paid-in-kind interest                                                                                20,179


      Accretion of asset retirement obligation                                                                139                   171


      Gain on sale of furniture and equipment                                                                   7


      Loss on early extinguishment of debt                                                                                      12,172


      Changes in operating assets and liabilities:



     Accounts receivable                                                                                  16,800              (13,466)



     Prepaid expenses                                                                                    (1,430)                (412)


      Accounts payable and accrued liabilities                                                              4,233                13,657



      Net cash provided by operating activities                                                            37,518                 9,136



      CASH FLOWS FROM INVESTING ACTIVITIES:


      Development and purchase of oil and natural
       gas properties                                                                                   (112,828)             (81,906)


      Acquisition of oil and natural gas properties                                                         (269)             (54,462)


      Proceeds from sale of oil and natural gas
       properties                                                                                          96,349                28,798


      Application of proceeds from non-operators                                                            (822)              (1,915)



     Advances to operators                                                                                 (917)                 (22)


      Purchase of furniture and equipment                                                                    (41)                (409)



      Net cash used in investing activities                                                              (18,528)            (109,916)



      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                                                                                                        56,366



     Dividends on preferred stock                                                                       (13,267)             (19,298)



     Deferred financing charges                                                                                              (10,991)


      Tax withholding related to restricted stock
       award vestings                                                                                     (1,253)                (586)


      Cash settlement of restricted shares                                                                  (511)



      Net cash (used in) provided by financing
       activities                                                                                        (15,031)               58,850



      NET INCREASE (DECREASE) IN CASH AND CASH
       EQUIVALENTS AND 
              RESTRICTED CASH                                                           3,959              (41,930)


      CASH AND CASH EQUIVALENTS AND RESTRICTED
       CASH, 
              BEGINNING OF PERIOD                                                                13,636                71,529



      CASH AND CASH EQUIVALENTS AND RESTRICTED
       CASH, 
              END OF PERIOD                                                              $
          17,595         $
         29,599


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 Nine Months Ended

                                               
            
             September 30,                                                   
     
              September 30,



                                               2018                                     2017                                          2018                                      2017



                                                      
           
                (in thousands, except share and per share data)


      NET LOSS ATTRIBUTABLE TO COMMON
       STOCKHOLDERS                                 $
           (21,145)                                      $
              (15,917)                           $
             (79,714)        $
       (44,631)



     SPECIAL ITEMS:


      (Gains) losses related to the change in
       mark to market value for outstanding
       commodity derivatives contracts                          (433)                                                     4,672                                          9,026                 1,898


      Impairment of oil and natural gas
       properties                                                                                                                                                      17,993


      Loss on early extinguishment of debt                                                                                                                                                  12,172



     Non-recurring severance costs                                                                                                                                     3,545



     Strategic review costs                                    5,450                                                                                                    6,668



     Retention bonus                                           2,290                                                                                                    2,290




      ADJUSTED NET LOSS ATTRIBUTABLE TO COMMON
       STOCKHOLDERS                                 $
           (13,838)                                      $
              (11,245)                           $
             (40,192)        $
       (30,561)





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



     Basic                                           $
           (0.07)                                        $
              (0.05)                             $
             (0.19)          $
       (0.16)




     Diluted                                         $
           (0.07)                                        $
              (0.05)                             $
             (0.19)          $
       (0.16)



      WEIGHTED AVERAGE SHARES OF COMMON STOCK



     Basic                                               212,192,850                                                209,072,232                                    211,296,176           190,745,688



     Diluted                                             212,192,850                                                209,072,232                                    211,296,176           190,745,688

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




                                                                       For the Three Months Ended                                                 For the Nine Months Ended

                                                                       September 30,                                                 September 30,



                                                        2018                                          2017                                                2018                                        2017



                                                               
           
                (in thousands)



     CASH FLOWS FROM OPERATING ACTIVITIES:



     Net loss                                                   $
            (17,527)                                         $
              (12,299)                                         $
        (68,860)    $
       (33,776)


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


      Depreciation, depletion and amortization                                7,460                                                         6,059                                                  24,026            16,762


      Impairment of oil and natural gas properties                                                                                                                                               17,993



     Stock-based compensation                                                  543                                                         1,791                                                   3,439             3,990


      Mark to market of commodity derivatives
       contracts:


      Total loss (gain) on commodity derivatives
       contracts                                                              2,925                                                         2,896                                                  17,710           (3,782)


      Cash settlements of matured commodity derivatives
       contracts, net                                                       (2,750)                                                        2,049                                                 (6,196)            5,602


      Cash premiums paid for commodity derivatives
       contracts                                                                                                                                                                                  (552)


      Amortization of deferred financing costs and debt
       discount                                                               3,512                                                         3,291                                                  10,030             8,218



     Paid in kind interest                                                   6,897                                                                                                               20,179


      Accretion of asset retirement obligation                                   43                                                            62                                                     139               171



     Loss on sale of assets                                                                                                                                                                          7



     Loss on early extinguishment of debt                                                                                                                                                                        12,172



      Cash flows from operations before working capital
       changes                                                                1,103                                                         3,849                                                  17,915             9,357



     Dividends on preferred stock                                                                                                       (1,206)                                                (7,236)          (8,443)


      Undeclared cumulative dividends on preferred
       stock                                                                (3,618)                                                      (2,412)                                                (3,618)          (2,412)



     Paid in kind interest                                                 (6,897)                                                                                                            (20,179)



     Non-recurring severance costs                                                                                                                                                               3,545



     Strategic review costs                                                  5,450                                                                                                                6,668



     Retention bonus                                                         2,290                                                                                                                2,290



      Adjusted cash flows (used in) provided by
       operations                                                 $
            (1,672)                                              $
              231                                            $
         (615)     $
       (1,498)


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




                                                                      For the Three Months Ended                                                  For the Nine Months Ended

                                                                        September 30,                                                    September 30,



                                                    2018                                          2017                                             2018                                           2017



                                                                             
              
                (in thousands)


      NET LOSS ATTRIBUTABLE TO COMMON
        STOCKHOLDERS                                       $
              (21,145)                                      $
              (15,917)                                      $
              (79,714)    $
        (44,631)



     Interest expense                                                   10,468                                                     10,159                                                     30,605             29,744


      Loss on early extinguishment of debt                                                                                                                                                                     12,172


      Depreciation, depletion and amortization                            7,460                                                      6,059                                                     24,026             16,762


      Impairment of oil and natural gas
       properties                                                                                                                                                                            17,993




     EBITDA                                                            (3,217)                                                       301                                                    (7,090)            14,047



     Dividends on preferred stock                                                                                                  1,206                                                      7,236              8,443


      Undeclared cumulative dividends on
       preferred stock                                                    3,618                                                      2,412                                                      3,618              2,412


      Accretion of asset retirement obligation                               43                                                         62                                                        139                171


      Losses (gains) related to the change in
       mark to market value for outstanding
       commodity derivatives contracts                                    (433)                                                     4,672                                                      9,026              1,898


      Non-cash stock-based compensation
       expense                                                              543                                                      1,791                                                      3,439              3,990



     Investment income and other                                          (22)                                                      (51)                                                      (62)             (166)



     Non-recurring severance costs                                                                                                                                                           3,545



     Strategic review costs                                              5,450                                                                                                                6,668



     Retention bonus                                                     2,290                                                                                                                2,290




     ADJUSTED EBITDA                                         $
              8,272                                         $
              10,393                                         $
              28,809     $
          30,795


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

View original content:http://www.prnewswire.com/news-releases/gastar-exploration-announces-third-quarter-2018-results-300750235.html

SOURCE Gastar Exploration Inc.