MT. PLEASANT, Mich., Aug. 27, 2002 (PRIMEZONE) -- Gastar Exploration, Ltd. (TSE:YGA) is pleased to provide the following operational update.
Deep Bossier Play, East Texas
As previously announced, Gastar has increased its working interest in its Deep Bossier Sands Project area through the acquisition of an additional 22.5% working interest in a 9,000-acre lease block located in Leon County, Texas. As a result, Gastar, as operator, has a 72.5% working interest position in the 9,000-acre block.
Gastar is an 11.82% working interest owner in the Belin Trust A-1 well and in the jointly controlled 4,100 acres surrounding that well. The Belin well, operated by Anadarko Petroleum (NYSE:APC) was drilled to a total depth of 20,946 feet and is in the process of being tested. The well encountered zones that Gastar believes are prospective for natural gas production in the Bossier Section, Cotton Valley and Travis Peak formations. The Belin well continues to be evaluated, and although certain delays have occurred, Gastar believes that all completion efforts will be finalized by the end of 2002.
Ultimately recoverable economic reserves attributable to Gastar's lease hold position, net to Gastar, have been estimated by Netherland Sewell & Associates to be approximately 550 BCF assuming 160 acre well spacing in the Bossier section and 80 acre well spacing for development of the Travis Peak reserves. These estimates are based upon a porosity cut-off of 9% and a maximum water saturation of 45%. These reserves are not classified as proven but provide the basis for a low-risk, long-term development program upon Gastar's deep Bossier properties.
Deep Trenton - Black River Play, Appalachia
Gastar has a minimum 7.5% working interest position in the Cross #1 well in the Cottontree Field located in Roane County, WV. The Cross #1 well has been drilled to a total depth of 10,700. The well encountered approximately 6 feet of highly fractured pay within the Trenton-Black River formation and flowed at an initial rate of over 1.1 MMCFD. The well is currently being connected to a natural gas pipeline and will be flowed and tested for approximately 30 to 60 days prior to further completion efforts. Gastar believes that the Cross well penetrated targeted the Trenton - Black River geologic feature peripherally and will have to be acidized to establish better communication with the geologic feature. The well currently has approximately 6,000 psi of surface pressure indicating communication with the over-pressured geologic feature.
The Cross #1 well is the first of two wells to be drilled in the immediate area of several previous successful Trenton - Black River wells drilled by Columbia Natural Resources (CNR, a subsidiary of NISource, NYSE:NI). One of these previous wells reported an absolute open flow of over 200 MMCFD of natural gas upon initial penetration of the Trenton - Black River formations. CNR is participating in the Cross well with a 25% working interest position.
Gastar has assembled an approximate 160,000-acre lease position in north central West Virginia in order to pursue additional Trenton - Black River and deeper prospects. The lease position was assembled based upon Gastar's extensive seismic reconnaissance and proprietary seismic reprocessing of available industry data along with several hundred miles of newly acquired proprietary seismic data. Gastar has identified approximately 100 prospects that are geologically analogous to the successful wells drilled in the Cottontree area.
Powder River Basin CBM Play, Wyoming
Gastar has recently completed a program to drill 12 additional wells and workover and re-enhance 35 of the Company's coalbed methane (CBM) wells drilled in the Squaw Creek project area of the Powder River Basin. As a result of these efforts and the obtainment of the necessary permits to handle produced water, Gastar's Squaw Creek property is producing and selling approximately 1.1 MMCFD of natural gas net to Gastar. Gastar expects the Squaw Creek property to ultimately produce approximately 3.0 to 3.6 MMCFD net to Gastar from the existing wells as these wells continue to de-water. Gastar's current lease position would allow the drilling of approximately 1,200 additional wells in the immediate area of the Company's existing production. The Company is planning the drilling of 100 to 150 additional wells in the Squaw Creek area over the next 12 months.
At the Company's Black Panther project area, the 44 wells drilled to-date are currently capable of producing approximately 350 MCFD of natural gas. Gastar believes that with several additional months of de-watering these wells will reach production rates necessary to allow access into the already installed compression and transportation assets. Gastar believes that gross peak rates of approximately 3.0 MMCFD will be ultimately achieved from the Black Panther project.
Gastar continues to hold acreage in the Culp Draw and Table Mountain areas that are within the area being developed for the deeper Big George coal seam. Gastar plans to monitor the development of the Big George coal and potentially participate in future development.
PEL 238 CBM Play, New South Wales, Australia
Gastar is the 100% working interest owner of a 2.2 million acre concession located in New South Wales, Australia approximately 250 miles northwest of the Sydney / New Castle area. As previously announced, Gastar recently re-worked several CBM wells drilled on the property by the previous operator and established short-term production rates that would indicate commercial viability for CBM development. The Company then equipped one of these wells with the necessary equipment for a long-term production test. That well, the Bohena #3 has been on continuous production for 6 months and is producing approximately 100MCFD of natural gas. This is an exceptional result in light of the fact that no other CBM wells are producing in the vicinity of the Bohena #3 well and thus no effective de-watering of the coal seams has taken place. Gastar believes that development of the CBM resources on the PEL 238 concession will result in substantially higher individual well production. Gastar's independent reservoir engineering firm, Netherland Sewell & Associates, has estimated that 6.6 trillion cubic feet of CBM recoverable reserves are in place on the PEL 238 concession.
Gastar is planning the drilling of three additional wells in the project area encompassing the Bohena #3 well to test the effects of partially de-watering the Maules Creek coal section. Current plans also call for a horizontal test of the Maules Creek coal in the Bohena project area either through re-entering the Bohena #4 or as a part of the completion of one of the new wells scheduled to be drilled. If the results of these wells continue to confirm the positive results seen to date, the Company plans to initiate development of an area sufficient to justify the installation of gathering and transportation assets to serve several local natural gas markets. Additional development of PEL 238 would be planned around the installation of pipeline assets necessary to deliver gas into the systems serving the Sydney / New Castle areas.
Another potential market for CBM from the PEL 238 property is the generation of electricity on-site. Eastern Star Gas Limited, the owner of the conventional oil and gas rights covering PEL 238, has announced a joint venture with Country Energy, the 3rd largest natural gas marketer in Australia, to study and develop cogeneration utilizing natural gas from PEL 238. Gastar is also pursuing strategies to expand potential CBM gas sales from PEL 238 including power generation business opportunities.
Gippsland Basin CBM Play, Victoria, Australia
Gastar applied for permits to begin drilling the first of several three to five well pilot programs to evaluate the CBM potential of the brown coals located within its licenses. Gastar has a 75% working interest position in approximately 2,000,000 acres comprising essentially the entire onshore portion of the Gippsland Basin. The Gippsland Basin is known to contain one of the world's largest accumulations of low rank brown coals and is the site of several very large surface coalmines. The project is expected to receive appropriate permits shortly and was originally scheduled to commence drilling in April. The start-up of the first pilot project has been delayed to the fourth quarter of 2002 due to several permitting delays. Well drilling is expected to be completed in the fourth quarter of 2002 with additional testing ongoing throughout the first half of 2003.
Prior to the decision to evaluate the CBM potential through drilling activities, Gastar commissioned Dr. Guy Holdgate, an outside consultant and the leading authority on the coals within the Gippsland Basin, to conduct an independent study of the potential for commercial CBM reserves on Gastar's licenses. Dr. Holdgate's study estimated that between 37 and 57 trillion cubic feet (TCF) of CBM gas is in place on Gastar's licenses. Using a 50% recovery factor results in potential CBM reserves net to Gastar's interest of over 16 TCF. Dr. Holdgate's study confirmed that the coals located in the Gippsland Basin are nearly identical in age and characteristics to the coals that are exploited for CBM in the Powder River Basin of Wyoming and Montana. Subsequent testing supported the Holdgate report.
Gastar has gathered definitive information on the prospective coals through observing the shallow portion of other operators' wells that have been drilled through the coals and through the commissioning of an independent resource evaluation. Specifically, Gastar has observed the drilling of two conventional wells that penetrated the coal sections. In both cases, as these wells penetrated the shallow coal formations, various tests were conducted that resulted in immediate indications of methane gas within the coals and permeability within the coal which is necessary to allow the coal to produce the methane. On March 8, 2002, a third party operator, Lakes Oil (ASX: LKO), announced the York #1, a shallow conventional well cored the coal sections and reported that "between 567 and 640 meters drilled a massive coal section" with minor gas shows encountered throughout the coal section. The York #1 encountered a total of 380 feet of coals. This is a strong indication of the presence of methane within coals that are permeable enough to allow the production of the methane against the well's fluid system. This well is located approximately 80 kilometers from the prior wells that tested positive for CBM indicating the potential for a large productive area. All of the wells discussed herein are with Gastar's license area for CBM development. Gastar's pilot projects will be focused near the prior test wells that encountered the massive coal sections and within 5 kilometers of a natural gas transmission pipeline that has the capacity to transport gas from this project.
Deep Temblor Play, San Joaquin Basin, California
Gastar owns approximately 4,000 acres of leases in the East Lost Hills area of the San Joaquin Basin. This area has been an active drilling province for the deep Temblor formation since an exploration well was drilled into the Temblor formation in November 1998 and experienced a high rate gas and condensate flow during a blow out and subsequent fire.
At the present time, two deep Temblor wells are being drilled on acreage immediately adjacent to Gastar's holdings. The NWLH 1-22 well, operated by Aera Energy, LLC along with its partners Ivanhoe Energy (Nasdaq:IVAN) (TSE:IE), PYR Energy Corporation and Ceniarth, Inc., was drilled to the Temblor formation and was subsequently sidetracked in the direction of Gastar's lease holdings and encountered the Temblor formation an estimated 800 feet higher than the original wellbore and more than 650 feet higher on structure than the nearest producing well. Gastar believes that if the NWLH 1-22 well is completed in the Temblor formation as a producing well, that Gastar's leasehold will become a significant opportunity for development by Gastar and/or industry partners. Gastar also believes that, based on seismic data, the Temblor formation will be encountered even higher on structure if a well were to be drilled on its acreage. Reserve estimates for the deep Temblor formation are 250 BCF of natural gas per square mile. Gastar's acreage directly offsetting the NWLH 1-22 is 320 acres or 1/2 square mile. Gastar has applied for two drilling locations on its leasehold.
Anadarko Petroleum Company (NYSE:APC) has drilled, set production casing and is awaiting completion efforts on the ELH #9 well in the southern portion of the East Lost Hills Temblor play on acreage that is immediately adjacent to another lease tract that is 100% owned by Gastar. While results of the APC well have not been released, Gastar believes that the Temblor formation has been encountered in the well and that natural gas shows were recorded during the drilling of the Temblor formation. If the Aera/Ivanhoe and Anadarko wells are successfully completed, Gastar will pursue the strategy of bringing in industry partners to drill Temblor wells at no cost to Gastar.
Financing Activities
In March, the Company completed a USD $6,710,000 (approximately CDN $10,600,000) arms-length financing through the issuance of convertible notes. The convertible notes have a term of two years, bearing an annual interest rate of 12%, and are convertible at the rate of one common share for each USD $1.10 (approximately CDN $1.74) of the principal amounts during the 30-day period immediately before maturity.
In April 2002, the Company commenced a financing of up to USD $10,000,000 through the issuance of convertible notes. These convertible notes also have a term of two years, bear an annual interest rate of 12% and will be convertible at the rate of one common share for each CDN $3.13 of the principal amount at the holder's option at any time during the 30-day period immediately before they mature. As of June 30, 2002 the Company had received net proceeds of USD $1,434,493 from arms length subscribers pursuant to this financing.
A further financing of USD $1,494,380 was conducted on June 28, 2002 whereby the Company repaid amounts outstanding under the CDN $25,000,000 line of credit it has with Geostar Corp. (the Company's controlling shareholder), through the issuance of 830,260 Common Shares at a deemed price of CDN $2.72 per share. This financing is subject to applicable regulatory approval.
This Press Release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Although Gastar believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals and assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements contained herein, include, among others, the success and timing of certain projects, the success in drilling and producing oil and gas properties, changes in commodity prices for oil and natural gas, operating risks, the uncertainty associated with estimating underground quantities of crude oil and natural gas reserves and other risk factors as described in the Company's Annual Information Form filed as of May 2002, on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.
The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.