Union Square: Long Case For Gastar


Union Square’s long case for Gastar Exploration, Inc. (NYSEMKT:GST). Also check out Bold Sears Call Helps Union Square Research ‘Return’ 100% In 2013

Union Square: Investment Opportunity

Rapid run-up in share price overshadows a dramatic increase in NAV during 2013. We believe the current share price is below the private market value of the two major producing assets. The sell side hasn’t yet given the company credit for Utica shale upside potentially worth an incremental $5/share.

  • West Virginia

Contiguous “blocked up” land position across roughly 16,000 net acres in the “super rich” Marcellus shale (Utica rights across 13,000+ net acres)

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  • Oklahoma

120,000+ net acre position in the high-return emerging Hunton Limestone oil play


Non-shale oil reservoir

  • ~18 MMcfe/day production (2/3 liquids)
  • 120,000+ net acres (200+ future locations)
  • Horizontal wells access natural fractures in oil impregnated limestone reservoir

Lower cost & lower risk

  • High IRR play (60%+ IRR) is less variable than Miss Lime
  • No large wastewater disposal costs

Valuation Methodology

Union Square Research Group has been at the forefront of unconventional oil and gas resource valuation.


Evaluation of geological aspects of a petroleum system and reservoir predict ultimate recoveries, consistency of results, and geographic sweet spots.


Evaluation of both the legal and geographic details of a company’s leasehold position is a crucial step, without which it is impossible to build an accurate development model.


Building conservative type-curves based on all relevant producing wells as well as analogous historic results (where appropriate) and state production data allows the creation of a realistic development model.

DCF Model

If accurate information is gathered in the first three steps, it is possible – using conservative assumptions – to build a discounted cash flow model of field development. This is the methodology used by sophisticated acquirers of assets of this type.

Union Square: What is the Utica exposure worth?

Two major data points:

American Energy Partners (Aubrey McClendon) recent acquisition from Hess

  • McClendon paid $924 million to purchase 74,000 net acres in the “dry gas” Utica shale from Hess Corp. (NYSE:HES) (January 29th, 2014)
  • $12,486 per net acre deal metric (no significant production)
  • Two December 2013 “dry gas” wells brought online at ~18MMcf/day

Recent Operator Results

  • Gulfport Energy Corporation (NASDAQ:GPOR) reported its first “dry gas” Utica well came online at 30.3 MMcf/day (November 5th, 2013)
  • Magnum Hunter Resources Corp (NYSE:MHR) reported its first “dry gas” Utica well came online at 32.5MMcf/day (February 14th, 2014)

H/T Harvest

See full PDF here.

Gastar Utica Update (1)