A Bad Day for Gastar

I ended the week on a sour note for a couple reasons, with one of those being that Gastar got shellacked, presumably on a report put out by a firm named Noble Financial.  Noble downgraded the stock from Buy to Hold apparently because of concerns about valuation. I haven’t heard of Noble Financial before but apparently they have some clout if they can send a stock down nearly 10% on their musings. If anyone can get their hands on this report I would love a copy.

With the stock in the dumps I took yet another look at Gastar to make sure I hadn’t forgotten anything. The company has had a lot of transactions since the end of Q3, so below is my reconciliation of the current enterprise value and the company’s valuation on a few common metrics.  This is a bit back of the envelope so the numbers might not be dead-on.

The annual EBITDA number comes from taking third quarter EBITDA of $16.8 million and assuming the 2,000boe/d that they added with the WEHLU transaction producing a similar EBITDA on a per boe/d basis and then subtracting $1 million of quarterly EBITDA from East Texas.

Let me know if you see anything wrong with these numbers.

Gastar certainly has risk associated with it, but I’m not sure I understand the valuation concerns.  If the expected Hunton growth is there, the current valuation looks cheap to me. But that’s the “if”.  The question is the Hunton: are the last couple of wells, in particular the 6H, which was a really spectacular well so far, representative of what they can drill on a sustainable basis?  If the answer to that is yes, then Gastar is just beginning.

I’m reserving judgment.  My understanding of the Hunton around North Kingfisher is that it is heterogeneous but its structures are easy to spot, so if there are enough traps on Gastar acreage they should be able to drill a number of good wells without too many dusters.  But this isn’t the Marcellus; I’m not sure whether the belief that the acreage will get “proved up” is going to be the correct way of thinking about it.

Anyways, I’d really like to see that Noble report if anyone has a copy.