Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

SCHEDULE 14A

INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant x                            Filed by a Party other than the Registrant ¨

Check the appropriate box:

Gastar Exploration Ltd.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Table of Contents

Gastar Exploration Ltd.

1331 Lamar Street, Suite 1080

Houston, Texas 77010

NOTICE OF THE 2009 GENERAL AND SPECIAL ANNUAL MEETING OF SHAREHOLDERS

Thursday, June 4, 2009

To our Shareholders:

The 2009 General and Special Annual Meeting of Shareholders (the “Annual Meeting”) of Gastar Exploration Ltd., an Alberta, Canada corporation, will be held on Thursday, June 4, 2009, 10:00 a.m. (central time), at the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas 77010. At the Annual Meeting, shareholders will consider and vote on the following matters:

Only holders of record of our common shares at the close of business on April 15, 2009 (the “Record Date”) are entitled to notice of and to attend the Annual Meeting or any adjournment(s) thereof and to vote on the above listed matters at the Annual Meeting. A list of shareholders entitled to vote at the Annual Meeting will be available for inspection starting on April 25, 2009 through Wednesday, June 3, 2009, during usual business hours at Gastar Exploration Ltd.’s offices at 1331 Lamar Street, Suite 1080, Houston, Texas 77010 and will also be available for inspection at the Annual Meeting.

It is important that your common shares are represented at the Annual Meeting, whether or not you plan to attend in person and regardless of the number of common shares you own. If you are a shareholder whose common shares are registered in your name and to make sure your common shares are represented, we urge you to submit a proxy containing your voting instructions as soon as possible by signing and dating the enclosed proxy card and returning it in the envelope provided for that purpose, each in the manner described in the accompanying Proxy Statement.

The specific details of the matters proposed to be dealt with at the Annual Meeting are set forth in the Proxy Statement accompanying this notice. Additionally, we will report on our business and financial performance, including our audited consolidated financial statements and the auditor’s report for the year ended December 31, 2008 and other information concerning us in our Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Annual Report on Form 10-K”), a copy of which accompanies this notice. The 2008 Annual Report on Form 10-K and this notice are being mailed to registered shareholders with the accompanying Proxy Statement on or about May 1, 2009 and also are available to you over the Internet at www.gastar.com.

Table of Contents

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON THURSDAY, JUNE 4, 2009.

The Proxy Materials, including the Proxy Statement and 2008 Annual Report on Form 10-K, are available at www.gastar.com.

DATED this 1st day of May 2009.

Table of Contents

Gastar Exploration Ltd.

1331 Lamar Street, Suite 1080

Houston, Texas 77010

PROXY STATEMENT FOR

THE 2009 GENERAL AND SPECIAL ANNUAL MEETING OF SHAREHOLDERS

Thursday, June 4, 2009

This Proxy Statement contains information about the 2009 General and Special Annual Meeting of Shareholders (the “Annual Meeting”) of Gastar Exploration Ltd. The Annual Meeting will be held on Thursday, June 4, 2009, 10:00 a.m. (central time), at the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas 77010.

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Gastar Exploration Ltd., which is also referred to as “Gastar”, the “Company”, “we”, “us” or “our” in this Proxy Statement. All proxies will be voted in accordance with the instructions they contain. If no instruction is specified on a proxy, it will be voted in favor of the matters set forth in the notice of the Annual Meeting. A shareholder may revoke his or her proxy at any time before it is exercised by (1) giving our secretary written notice to that effect at the registered office of the Company at any time up to and including the last business day preceding the day of the Annual Meeting, (2) giving written notice to that effect to the chairperson of the Annual Meeting on the day of the Annual Meeting, (3) executing and submitting a proxy with new voting instructions and (4) voting in person at the Annual Meeting. To obtain directions to attend the Annual Meeting and vote in person, please access our website at www.gastar.com or call (713) 739-1800.

The matters to be acted on at the Annual Meeting are set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. Additionally, we will report on the business and financial performance of Gastar.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON THURSDAY, JUNE 4, 2009.

In accordance with new rules approved by the Securities and Exchange Commission (the “SEC”) and in connection with the solicitation of proxies by our Board of Directors for the Annual Meeting, we have made our proxy materials in addition to delivering paper versions of these materials to you by mail (including the notice, this Proxy Statement, the 2008 Annual Report on Form 10-K and a form of proxy) available to you over the Internet in addition to delivering paper versions of these proxy materials to you by mail. Beginning on or about May 1, 2009, these proxy materials are being mailed to our shareholders and are available on the Internet at www.gastar.com.

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Annual Report on Form 10-K”) was filed with the SEC and accompanies this Proxy Statement.

Table of Contents

TABLE OF CONTENTS

i

Table of Contents

VOTING INFORMATION

What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will consider and vote on the following matters:

In addition, our executive management will report on our business and financial performance during fiscal year 2008 and respond to your questions.

Who can vote?

To be able to vote, you must have been a shareholder of record at the close of business on April 15, 2009 (the “Record Date”). Shareholders of record on the Record Date are entitled to vote on each proposal at the Annual Meeting. As of the Record Date, there were 211,332,963 common shares outstanding. Each common share is entitled to one vote on each matter properly brought before the Annual Meeting.

How many votes do I have?

Each of our common shares that you own on the Record Date entitles you to one vote on each matter that is properly brought before the Annual Meeting.

Is my vote important?

Your vote is important regardless of how many common shares you own. Please take the time to vote. Please read the instructions below, choose the way to vote that is easiest and most convenient for you and cast your vote as soon as possible.

What constitutes a quorum and voting?

A quorum of shareholders is necessary for a valid Annual Meeting. The required quorum for the transaction of business at the Annual Meeting is the presence of a holder or holders of not less than 5% of the total outstanding common shares entitled to vote at the Annual Meeting, either present in person or represented by proxy. Abstentions and proxies returned by brokerage firms for which no voting instructions have been received from their principals will be counted for the purpose of determining the presence of a quorum.

If a quorum is present at the Annual Meeting, the affirmative vote of a majority of the votes cast in person or by proxy is required to fix the Board at four members. With respect to the election of the Board of Directors, if a quorum is present, the four director nominees who receive the greatest number of votes cast by the holders of common shares present in person or by proxy and entitled to vote shall be elected as directors. If a quorum is present, the affirmative vote of a majority of the votes cast in person or by proxy is required to ratify the appointment of BDO Seidman, LLP, as our independent registered public accountants for 2009. If a quorum is present, to approve the amendments to our 2006 Long-Term Stock Incentive Plan, the affirmative vote of a majority of the votes cast in person or by proxy is required, excluding the votes of Common Shares held by the insiders of the Company or their associates to whom this resolution will effect.

1

Table of Contents

Abstentions and broker non-votes will have no effect on the outcome of the election of directors, assuming a quorum is present or represented by proxy at the Annual Meeting. With respect to all other matters, abstentions and broker non-votes are not considered to be votes cast and therefore will have no effect on such matters. A broker non-vote occurs if a broker or other nominee of shares does not have discretionary authority and has not received voting instructions with respect to a particular matter.

How do I vote my shares?

If you own your common shares as of the Record Date, you may vote by submitting your proxy by mail or in person at the Annual Meeting.

To Vote by Mail. You may vote by completing and signing the proxy card that accompanies this Proxy Statement and promptly mailing it in the enclosed envelope. The common shares you own will be voted according to the instructions on the proxy card that you provide. If you return the proxy card but do not give any instructions on a particular matter described in this Proxy Statement, the common shares you own will be voted in accordance with the recommendations of the Board of Directors. In order to be valid and acted upon at the Annual Meeting, your proxy card must be received by our registrar and transfer agent, American Stock Transfer & Trust Company, Attention: Proxy Department, 6201 15^th Avenue, Brooklyn, New York 11219, at least 24 hours before the time of the Annual Meeting or any adjournment thereof, excluding weekends and holidays.

To Vote in Person. If you attend the Annual Meeting, you may vote by delivering your completed proxy card in person or you may vote by completing a ballot. Ballots will be available at the Annual Meeting. Attending the Annual Meeting without completing a ballot will not count as a vote. Submitting a proxy will not prevent a shareholder from attending the Annual Meeting and voting in person.

Can I change my vote after I have mailed my proxy card?

Yes. You can change your vote and revoke your proxy at any time before the polls close at the Annual Meeting by doing any one of the following things:

Your attendance at the Annual Meeting alone will not revoke your proxy.

Can I vote if my shares are held in “street name”?

If your common shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of the common shares held in “street name”. As the beneficial owner, you have the right to direct your broker or nominee how to vote your common shares and are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you may not vote these shares in person at the Annual Meeting unless you obtained a signed proxy from the record holder giving you the right to vote the shares. In order to vote your common shares, you will need to follow the directions your bank or brokerage firm provides you.

2

Table of Contents

How does the Board of Directors recommend that I vote on the proposals?

The Board of Directors recommends that you vote:

Will any other business be conducted at the Annual Meeting or will other matters be voted on?

The Board of Directors does not know of any other matters that may come before the Annual Meeting. If any other matter properly comes before the Annual Meeting, the persons named in the proxy card that accompanies this Proxy Statement, whether you submit your proxy in person or by mail, will exercise their judgment in deciding how to vote, or otherwise act, at the Annual Meeting with respect to that matter or proposal.

May I propose actions for consideration at next year’s Annual Meeting or nominate individuals to serve as directors?

You may submit proposals for consideration at future annual meetings. Please read “Shareholder Proposals and Nominations” for information regarding the submission of shareholder proposals at next year’s annual meeting.

Where can I find the voting results?

We will report the voting results in our quarterly report on Form 10-Q for the second quarter of 2009, which we expect to file with the SEC in August 2009.

Who bears the costs of soliciting these proxies?

We will bear the costs of the solicitation of proxies. Our directors, officers and regular employees may solicit proxies by telephone, email and personal interviews without additional remuneration. Brokers, custodians and fiduciaries will be requested to forward proxy soliciting material to the owners of our common shares that they hold in their names. We will reimburse banks and brokers for their reasonable out-of-pocket expenses incurred in connection with the distribution of our proxy materials.

INFORMATION ABOUT DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS

The Board of Directors is presently composed of four members: J. Russell Porter, Abby F. Badwi, Robert D. Penner and John M. Selser Sr., who were elected directors at the Company’s 2008 annual meeting of shareholders. Messrs. Porter, Penner and Selser have been nominated to stand for re-election. Mr. Badwi will not stand for re-election at the Annual Meeting, which is the end of his term. Mr. Badwi has made a voluntary decision not to stand for re-election as a director. The Nomination Committee has named John R. Rooney, a Canadian citizen, to replace Mr. Badwi and stand for election at the Annual Meeting. Biographical information about each nominee can be found beginning on page 34 in connection with “Proposal 2. Election of Directors”.

3

Table of Contents

Biographical information about certain of our executive officers and other member of our management as of May 1, 2009 is set forth below.

J. Russell Porter has been a member of the Board of Directors and has served as our President and Chief Executive Officer since February 2004 and was appointed Chairman of the Board in August 2006. From September 2000 to February 2004, he served as our Chief Operating Officer. Mr. Porter has an energy focused background, with approximately 18 years of natural gas and oil exploration and production experience and five years of banking and investment experience specializing in the energy sector. From April 1994 to September 2000, Mr. Porter served as an Executive Vice President of Forcenergy, Inc., a publicly traded exploration and production company, where he was responsible for the acquisition and financing of the majority of its assets across the United States and Australia. He currently is a director of Caza Oil & Gas, Inc., a publicly traded exploration and development company listed on the Toronto Stock Exchange and the London AIM exchange. Mr. Porter holds a Bachelor of Science degree in Petroleum Land Management from Louisiana State University and a MBA from the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill.

Michael A. Gerlich joined us in May 2005, as Vice President and Chief Financial Officer. Mr. Gerlich has over 30 years of natural gas and oil accounting and finance experience. From 1998 until joining us, he held various accounting and finance positions at Calpine Natural Gas LP, a wholly owned subsidiary of Calpine Corporation, an independent electric power generation company listed on the New York Stock Exchange. His last position at Calpine Natural Gas LP was Senior Vice President – Accounting and Finance, for the natural gas and oil operations of the wholly owned subsidiary. From 1994 until 1999, Mr. Gerlich served as Vice President and Chief Financial Officer of Sheridan Energy, Inc, an independent natural gas and oil exploration company traded on the NASDAQ, which was acquired in 1999 by Calpine Corporation. Over a 10-year period prior to joining Sheridan Energy, Mr. Gerlich held various accounting and finance positions with Trinity Resources, Ltd., an independent natural gas and oil exploration and production company, with his last position being Executive Vice President and Chief Financial Officer. Prior to that, Mr. Gerlich was also with a Big Four accounting firm, where the focus of his practice was with energy related clients. Mr. Gerlich is a Certified Public Accountant and graduated with honors from Texas A&M University with a Bachelor of Business Administration degree in Accounting.

Frederick E. Beck, PhD joined us in April 2002, as Vice President of Drilling. Dr. Beck has over 26 years of diversified experience in the natural gas and oil business. He has held positions as a drilling engineer and drilling supervisor for a major operator and was an assistant professor of petroleum engineering at the New Mexico School of Mines. From 1996 and prior to joining us as Vice President of Drilling, Dr. Beck was Vice President of the turnkey drilling division of Nabors Drilling USA LP, a domestic natural gas and oil drilling company. Dr. Beck holds a Bachelor of Science degree in Geology, Master of Science degree in Petroleum Engineering and Doctor of Philosophy Degree in Petroleum Engineering, all from Louisiana State University in Baton Rouge, Louisiana.

Keith R. Blair joined us in August 2005 as a Senior Staff Geologist. He was promoted to Vice President, Exploration Manager in 2008. Mr. Blair has 30 years of natural gas and oil experience. He has extensive working knowledge of natural gas and oil basins in Colorado, New Mexico, East Texas, West Virginia/Pennsylvania,

4

Table of Contents

Offshore Gulf of Mexico and the Texas/Louisiana Gulf Coast. Prior to joining us, from 1999 until 2005, he was an independent exploration geologist. From 1995 until 1999, he was a Senior Geophysicist at Schlumberger Limited. Prior to 1995, he held an Exploration Manager/Supervisor position at Conoco Phillips for 14 years. He began his career as a well logging engineer with Halliburton Company. Mr. Blair graduated from Texas A&M University with a Bachelor of Science degree in geology.

Henry J. Hansen joined us in September 2005, as Vice President of Land. Mr. Hansen has over 29 years of land management experience. Prior to joining us, Mr. Hansen was Rocky Mountain Land Manager with El Paso Corporation, a natural gas and oil exploration, production and pipeline company, from 1999 until January 2003. He returned to El Paso Corporation in June 2004, where he was senior landman until joining us in September 2005. Mr. Hansen graduated from the University of Texas at Austin with a Bachelor of Business Administration in Petroleum Management.

R. David Rhodes joined us in March 2006, as Vice President of Completion and Production. Mr. Rhodes has over 26 years of petroleum engineering experience, focused primarily in the supervision and management of completion and production operations. Prior to joining us, he managed Oil & Gas Operations and Consulting, Inc., an independent consulting firm he established in May 2001, where he worked as a petroleum engineering consultant for numerous natural gas and oil operators including us. Mr. Rhodes continues to maintain his relationship with Oil & Gas Operations and Consulting, Inc. From 1981 to 2001, Mr. Rhodes held various engineering and management/supervisory positions at Getty Oil Company and Marathon Oil Company (formerly Texas Oil & Gas Company), major integrated natural gas and oil companies. His last position was Operations Manager for East Texas and Northern Louisiana. Mr. Rhodes holds a Bachelor of Science degree in Petroleum Engineering from Louisiana Tech University.

Sara-Lane Ruzicki, LLB has served as an attorney in private practice since April 2001 and has served as our Corporate Secretary and General Corporate Canadian Counsel since May 2000 on a contract basis. From July 1993 to April 2001, she served as an attorney at the law firm of Armstrong Perkins Hudson LLP (formerly Ogilvie and Company) in Calgary, Alberta, Canada, becoming a partner in 1999. Specializing in corporate/securities law, she has acted for issuers in all industry segments in Canada, the United States and internationally, focusing on corporate reorganizations, commercial transactions and initial public offerings of junior emerging companies as well as equity and debt financings, mergers and acquisitions and commercial transactions of senior established companies. Ms. Ruzicki obtained her Bachelor of Laws degree at the University of Saskatchewan.

CORPORATE GOVERNANCE

Information about the Board of Directors

The Board of Directors believes that good corporate governance improves corporate performance and benefits all shareholders. The Canadian Securities Administrators (the “CSA”) have adopted National Policy 58-201 Corporate Governance Guidelines, which provides non-prescriptive guidelines on corporate governance practices for reporting issuers such as us. In addition, the CSA have implemented National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”), which prescribes certain disclosure by us of our corporate governance practices.

This section sets out our approach to corporate governance and addresses our compliance with NI 58-101 and the applicable listing standards of the NYSE Alternext US LLC.

Mandate of the Board of Directors

The Board of Directors is responsible for managing our business affairs. The primary responsibility of the Board of Directors is to promote our best interests and the best interests of our shareholders. This responsibility includes: (i) approving annual capital expenditure budgets and general and administrative expense budgets and reviewing fundamental operating, financial and other corporate plans, strategies and objectives; (ii) outlining key

5

Table of Contents

operating parameters including debt levels and ratios; (iii) evaluating our performance and the performance of our senior management; (iv) determining, evaluating and fixing the compensation of executive officers; (v) adopting policies of corporate governance and conduct; (vi) considering risk management matters; (vii) reviewing the process of providing appropriate financial and operational information to shareholders and the public generally; and (viii) evaluating the overall effectiveness of the Board of Directors. The Board of Directors explicitly acknowledges its responsibility for our stewardship. The Board of Directors reviews with management matters of strategic planning, business risk identification, succession planning, communications policy and integrity of internal control and management information systems. The Board of Directors fulfills its responsibilities through regular and special meetings.

Members of the Board of Directors

The Board of Directors is comprised of four members whose names and committee memberships are set forth below. The Board of Directors has determined the members of the Board of Directors, with the exception of Mr. Porter, have no material relationship with us (either directly or as partners, shareholders or officers of an organization that has a relationship with us) and are independent within the meaning of the NYSE Alternext US LLC and National Instrument 58-101 director independence standards. Mr. Porter, as our President and Chief Executive Officer, is not considered to be independent. Furthermore, the Board has determined that each of the members of the Audit Committee, the Remuneration Committee, the Nomination Committee, the Governance Committee and the Reserves Committee has no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us) and is independent within the meaning of the NYSE Alternext US LLC and the National Instrument 58-101 director independence standards.

Board of Directors and Committee Meetings

The Board of Directors meets a minimum of four times per year. In addition, the Board of Directors meets at such other times as may be required if it is not possible to deal with our business at a regularly scheduled quarterly meeting.

The Board of Directors facilitates its independent supervision over management in a number of ways, including by holding regular meetings at which members of management and non-independent directors are not in attendance and by retaining independent consultants where it deems necessary.

6

Table of Contents

For the year ended December 31, 2008, each member of the Board of Directors and each director that was a member of a committee attended at least 75% of all meetings held by the Board of Directors and each committee of which he was a member at the time of the meeting. Each member of the Board of Directors attended at least 75% of all such special meetings held by the Board of Directors if he were a director at the time of the meeting. The following chart discloses the number of Board of Directors and Committee meetings held during 2008 and the attendance of each director.

Other Directorships

The following table gives details of the directorship positions with other reporting issuers, which each director currently maintains:

Orientation and Continuing Education

When new directors are appointed, they receive orientation, commensurate with their previous experience, on our properties, business, operations and industry and on the responsibilities of directors. Board meetings may also include presentations by our management and employees to give the directors additional insight into our business. New directors are provided with access to our publicly filed documents, technical reports and internal financial information and given copies of all the minutes of Board of Directors meetings and corporate governance materials. Directors are encouraged to ask questions and communicate with management, auditors and technical consultants to keep themselves current with industry trends and developments and changes in the legislation.

Nomination of Directors

The Board of Directors has delegated the responsibility of identifying new candidates to the Nomination Committee. The process and responsibility of the Nomination Committee is set forth below under the heading “Nomination Committee” on page 9.

Compensation

The Board of Directors has delegated the responsibility of determining compensation strategies and recommending the forms and amounts of compensation for directors, officers, consultants and employees to the Remuneration Committee. Please refer to the disclosure under the heading “Remuneration Committee” on page 11.

7

Table of Contents

Position Descriptions

The Board of Directors has developed written position descriptions of responsibilities for the chairmen of the Board of Directors and for each of the Committees, which inter alia, provide guidance on providing effective Board/Committee leadership; overseeing all aspects of its direction and administration in fulfilling the respective terms of reference for the Board and the Committee; and overseeing the structure, composition, membership and activities delegated to the Board/Committee.

The roles and responsibilities of the Chief Executive Officer are established each year through discussion and recommendation by and among the Chief Executive Officer, the Remuneration Committee and the Board of Directors. The roles and responsibilities of the Chief Executive Officer are reviewed, discussed and further defined on an ongoing basis through meetings of the Board of Directors and the Committees of the Board of Directors.

Lead Director

Mr. Badwi currently acts as lead director of the Board of Directors. As lead director, Mr. Badwi is responsible for ensuring the appropriate organization, content and flow of information to the Board of Directors; that all concerns of the directors are addressed; and that the Board of Directors acts independently of our management.

Board Evaluations/Assessments

We have established procedures and surveys for assessing and evaluating the performance of the Board of Directors. The surveys completed by each director are summarized and discussed by the Board of Directors as a whole with the objective of making changes to policies or procedures to address comments aimed at greater Board of Directors effectiveness.

Code of Ethics

We adopted a Code of Ethics for all employees, including our executive officers on December 15, 2005. A copy of our Code of Ethics is available on our Internet website at www.gastar.com. A copy of our Code of Ethics will be provided to any person without charge, upon request. Such requests should be directed to our Secretary at 1331 Lamar Street, Suite 1080, Houston, Texas 77010.

Communications with the Board

Shareholders or other interested parties may send communications to the Board of Directors by writing to our Secretary at 1331 Lamar Street, Suite 1080, Houston, Texas 77010. Our Secretary will forward to the directors all communications that, in her judgment, are appropriate for consideration by the directors. Comments or complaints relating to our accounting, internal accounting controls or auditing matters will also be referred to our Audit Committee. Our Audit Committee has procedures for (a) receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters and (b) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. The “Whistleblower” policies and procedures adopted by the Audit Committee are available on our Internet website at www.gastar.com.

Attendance at the Annual Meeting of Shareholders

We have not adopted a formal policy with regards to director attendance at the annual meetings of shareholders. In 2008, Mr. Porter attended our Annual Meeting of Shareholders.

8

Table of Contents

INFORMATION ABOUT OUR COMMITTEES

Each of the following Committees of the Board of Directors have Terms of Reference approved by the Board of Directors, which provide descriptions of the role of the Chairman of such Committee and the roles and responsibilities of the Committee as a whole. The Terms of Reference function as a charter for the respective Committees and each is available on our Internet website at www.gastar.com.

Nomination Committee

In March 2006, the Board of Directors established a Nomination Committee. The role of the Nomination Committee is to assist the Board of Directors in ensuring that the Board of Directors is comprised of individuals who are best able to discharge the responsibilities of directors, having an understanding of our industry, stage of growth, the law and the highest standards of governance. The tasks and responsibilities of the Nomination Committee are defined in its Terms of Reference, which was approved by the Board of Directors. The Nomination Committee currently is comprised of Mr. Selser (Chairman) and Messrs. Badwi and Penner.

The Board of Directors does not currently have a policy relating to consideration of director nominees by our shareholders. The Board may consider such a policy in the future. At present, the Board believes that the Nomination Committee is in the best position to identify and evaluate director candidates. New candidates are identified by the Nomination Committee, whose responsibility is to develop, and annually update and recommend to the Board for approval, a long-term plan for the composition of the Board of Directors that takes into consideration the following: (a) the independence of each director; (b) the competencies and skills the Board of Directors, as a whole, should possess; (c) the current strengths, skills and experience represented by each director, as well as each director’s personality and other qualities as they affect dynamics of the Board of Directors; and (d) our strategic direction. From time to time, the Nomination Committee has used a third party to assist it in identifying and evaluating potential director candidates.

Corporate Governance Committee

The Corporate Governance Committee currently is comprised of Mr. Badwi (Chairman) and Messrs. Penner and Selser. It has the responsibility of monitoring our overall approach to corporate governance issues which include:

Audit Committee

Composition

The Audit Committee currently is comprised of Mr. Penner (Chairman) and Messrs. Badwi and Selser, each of whom is independent under the rules of the NYSE Alternext US LLC and Section 10A (“Audit Requirements”) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Mr. Penner, Audit Committee Chairman, is designated as the “audit committee financial expert,” as that term is defined under Securities and Exchange Commission rules. He became a member of the Board of Directors effective July 16, 2007. Mr. Penner is a retired senior partner with KPMG LLP, whose career of advising public and private clients on tax and accounting matters has spanned almost 40 years.

9

Table of Contents

In accordance with its Terms of Reference, the Audit Committee examines and reviews on behalf of the Board of Directors, internal financial controls, financial and accounting policies and practices, the form and content of financial reports and statements, and the work of the external auditors. The Audit Committee is responsible for hiring, overseeing and terminating the independent registered public accounting firm and determining the compensation of such accountants. The Chief Financial Officer attends the meetings of the Audit Committee by invitation.

Reliance on Certain Exemptions

At no time since the commencement of our most recently completed fiscal year have we relied on the exemptions in Section 2.4 (De Minimus Non-audit Services), Section 3.2 (Initial Public Offerings), Section 3.4 (Events Outside Control of Member), Section 3.50 (Death, Disability or Resignation of Audit Committee member) or Part 8 (Exemptions) of Canadian Multilateral Instrument 52-110 (“MI 52-110”).

Reliance on the Exemption in Subsection 3.3(2) or Section 3.6

At no time since the commencement of our most recently completed fiscal year have we relied on the exemption in Subsection 3.3(2) (Controlled Companies) or Section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances) of MI 52-110.

Reliance on Section 3.8

At no time since the commencement of our most recently completed fiscal year have we relied on Section 3.8 (Acquisition of Financial Literacy).

Audit Committee Oversight

At no time since the commencement of our most recently completed fiscal year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board of Directors.

Audit Committee Charter

A copy of the Terms of Reference for the Audit Committee, which functions as its charter, is attached to this Proxy Statement as Appendix A.

Audit Committee Report

The Audit Committee assists the Board of Directors in overseeing matters relating to our accounting and financial reporting practices, the adequacy of its internal controls and the quality and integrity of its financial statements and is responsible for selecting and retaining the independent auditors. The Audit Committee’s responsibilities are more fully described in its Terms of Reference. Our management is responsible for preparing our financial statements and the independent auditors are responsible for auditing those financial statements. The Audit Committee does not provide any expert or special assurance as to our financial statements or any professional certification as to the independent auditors’ work. The Audit Committee met four times (once in person) during the year ended December 31, 2008.

In fulfilling its oversight responsibilities, the Audit Committee reviewed our audited financial statements as of and for the year ended December 31, 2008 and discussed them with management and BDO Seidman, LLP, our independent registered public accounting firm. The Audit Committee discussed and reviewed with BDO Seidman, LLP all matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. all Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

10

Table of Contents

The Audit Committee has received the written disclosures and the letter from BDO Seidman, LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent consultants’ communications with the Audit Committee concerning independence and has discussed with BDO Seidman, LLP its independence from us and our management.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2008.

GASTAR EXPLORATION LTD.

AUDIT COMMITTEE

/s/ Robert D. Penner

/s/ Abby F. Badwi

/s/ John M. Selser Sr.

This report of the Audit Committee shall not be deemed “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that the information be treated as soliciting material or specifically incorporate by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.

*    *    *

Remuneration Committee

During the year ended December 31, 2008, the Compensation Committee of the Board of Directors, which we refer to as the Remuneration Committee, was comprised of Mr. Badwi (Chairman) and Messrs. Crow and Selser. Mr. Crow resigned from the Board of Directors effective January 1, 2008. Currently, our Remuneration Committee is comprised of Mr. Badwi (Chairman) and Messrs. Penner and Selser. None of our named executive officers serves as a member of the Board of Directors or Compensation Committee (or committee performing similar functions) of any other entity, one or more of whose executive officers serve on our Board of Directors or Remuneration Committee.

The aim of the Remuneration Committee is to award and compensate our officers and employees in a manner which provides incentives for the enhancement of shareholder value, for the successful implementation of our business plan and for continuous improvement in corporate and personal performance. The compensation program is based on a pay-for-performance philosophy and consists of three components: base salary, annual incentive (bonus) paid in cash and long-term equity based incentives.

The Remuneration Committee reviews and recommends the compensation philosophy and guidelines for us which include reviewing the compensation philosophy and guidelines for employees, including recommendation to the Board of Directors for its consideration and approval related to annual salary, incentive policies and programs, material new benefit programs and material changes to existing benefit programs.

The Remuneration Committee reviews on an annual basis the cash compensation, performance and overall compensation package for each executive officer. It then submits to the Board recommendations with respect to the base salary, bonus and participation in long-term incentive compensation arrangements for each executive officer. In conducting its review, the Remuneration Committee was satisfied that all recommendations complied with the Remuneration Committee’s philosophy and guidelines. Additionally, in 2008, the Remuneration Committee, at the request of the Board of Directors, retained an independent consulting firm to prepare a summary regarding current executive compensation environment practices in today’s market. For more information on the role of the Remuneration Committee and the independent consulting firm, see “Executive Compensation” below.

11

Table of Contents

Reserve Committee

The Reserve Committee currently is comprised of Mr. Selser (Chairman) and Messrs. Badwi and Penner. Its responsibilities include:

12

Table of Contents

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information regarding the compensation paid to our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”). These individuals, referred to as “named executive officers,” are identified below:

Mr. Pettit resigned as Vice President and COO on November 10, 2008 but is included in this section because he was one of our highly compensated executive officers other than our CEO and CFO during fiscal year 2008.

Compensation Philosophy and Objectives

Our executive compensation program is designed to provide compensation at a level necessary to retain talented and experienced executives and to motivate them to achieve both short-term and long-term corporate goals that enhance shareholder value. Consistent with this philosophy, following are the key objectives of our compensation programs.

Attract, Motivate and Retain Key Employees. Our executive compensation program is shaped by the competitive market for management talent in the independent natural gas and oil exploration and production industry. We believe our executive compensation should be comparable to that of the companies with which we compete for talent. Our goal is to provide compensation and benefits at levels that attract, motivate and retain superior executive talent for the long-term.

Shareholder Alignment. One of the objectives of our executive compensation program is to ensure that an appropriate relationship exists between executive pay, our financial performance and the creation of shareholder value. We believe that linking executive compensation to corporate performance results in a better alignment of compensation with corporate goals and shareholder interests. Our compensation program aligns pay to performance by making a substantial portion of total executive compensation variable, or “at-risk,” through an annual bonus program based on Company performance goals and the granting of long-term incentive equity awards, which have included stock options and restricted stock. As performance goals are met, not met or exceeded, executives are rewarded commensurately.

Determination of Executive Compensation

Role of the Remuneration Committee. Executive compensation is the responsibility of the Remuneration Committee (the “Committee”). The Committee operates under a written charter, or “Terms of Reference,” adopted by the Board of Directors. Abby F. Badwi, Robert D. Penner and John M. Selser Sr. are members of the Board of Directors and the current members of the Committee. Mr. Badwi is the current Committee Chairman. Each member of the Committee qualifies as an independent director under the NYSE Alternext US LLC listing standards and under the Exchange Act. A copy of the Committee’s Terms of Reference is available to shareholders on our website at www.gastar.com.

The role of the Committee is to award and compensate our officers and employees in a manner that provides incentives for the enhancement of shareholder value, for the successful implementation of our business plan and for continuous improvement in corporate and personal performance. The compensation program is based on a pay-for-performance philosophy and consists of three components: base salary, annual incentive bonus and long-term equity-based incentive compensation.

13

Table of Contents

Annually, the Committee reviews and recommends the compensation philosophy for executive management and makes a recommendation to the Board for its consideration and approval.

During 2008, the Committee reviewed the cash compensation, performance and overall compensation package for each named executive officer. It then submitted to the Board recommendations with respect to the salary, bonus and participation in share compensation arrangements for each named executive officer. In conducting its review of management’s recommendations, the Committee was satisfied that all recommendations complied with the Committee’s philosophy and guidelines.

Interaction between the Remuneration Committee and Management. Our CEO plays an important role in the executive compensation process and is closely involved in assessing the performance of our other named executive officers and making recommendations to the Committee regarding base salary, bonus targets, performance goals established for the annual incentive plan, and weighting and equity compensation for these executive officers. His recommendations are based on an assessment of the named executive officers’ responsibilities and performance, our performance and the compensation that companies in our peer group pay to employees in comparable positions. Our CFO also plays an important role in our executive compensation process. He makes recommendations to the Committee regarding the structure of the annual cash bonus awards program and the size of such awards. These recommendations are drawn from his previous work experience and informal discussions with CFOs at other similarly-sized natural gas and oil companies regarding their cash bonus programs.

Role of Consultant and Market Analysis. During 2008, the Committee engaged Longnecker & Associates (“L&A”), an independent, Texas-based consulting firm, experienced in executive compensation, with access to national compensation surveys. For the purposes of its report, L&A’s engagement objectives included:

For fiscal year 2008, L&A provided us with competitive data from a peer group of companies in the oil and natural gas industries, with market capitalization and revenues similar to our own. Companies reviewed by L&A included:

Abraxas Petroleum Corporation

Approach Resources, Inc.

Bankers Petroleum

Brigham Exploration Company

Canadian Superior Energy, Inc.

Edge Petroleum Corporation

Falcon Oil & Gas Ltd.

Gasco Energy, Inc.

GeoMet, Inc.

TXCO Resources, Inc.

Warren Resources, Inc.

14

Table of Contents

L&A also provided us with market compensation data from published survey sources utilizing companies that operate in the oil and natural gas industries. Specific surveys included:

Based upon comparative pay information of our peer group and the published survey data referred to above, L&A and the Committee determined that the named executive officers’ (a) 2008 base salaries were slightly above the market 75^th percentile, (b) 2008 total cash compensation (base salary, plus the annual cash incentive award) approximated the market 50^th percentile, (c) 2008 long-term equity awards were significantly below the market 50^th percentile, and (d) 2008 total direct compensation (total cash compensation, plus equity incentive awards) was slightly below the market 50^th percentile. Based upon these findings, the Committee believes that the individual pay components and total direct compensation levels of the named executive officers in 2008 was fair, reasonable and aligned with competitive pay practices of the Company’s peer group and the published survey data.

Though we review information regarding the compensation practices of our peer group of companies and the survey data just discussed, individual compensation decisions for our named executive officers are subject to upward or downward adjustment, based on the recommendations of our CEO and a number of factors related to both corporate and individual performance. We use the data regarding the pay practices of companies in our peer group as a reference point and as a guide to competitiveness and reasonableness, but we do not adhere to rigid targets based upon the compensation components of employees at companies within that group. Our objective is to maintain total direct compensation, consisting of base salary, performance-based cash compensation and equity awards, in proximity to a median range of our peer group. However, the Committee has the discretion to adjust an award upward to account for individual achievement in the last fiscal year, the requirements of a particular position, and market competitiveness for a particular individual’s skills and services, among other factors.

Compensation for our Named Executive Officers and Rationale

Base Salary. Base salary represents the fixed element of the named executive officers’ cash compensation. The base salary reflects results of individual negotiations, economic consideration for each individual’s level of responsibility, expertise, skills, knowledge, experience and performance and reasonable comparability of similar executive base salaries for executives employed by our peer group companies. Each of our named executive officer’s initial annual salary was set in his respective employment agreement but may be adjusted upward or downward at the discretion of the Committee at the anniversary date of each officer’s employment.

Mr. Porter’s base salary amount of $450,000, which was set in his employment agreement dated February 24, 2005, was not changed in 2008. Mr. Gerlich’s base salary originally was set at $275,000 in his employment agreement, dated May 17, 2005. The Committee increased Mr. Gerlich’s base salary to $300,000, effective as of April 1, 2008, in recognition of his continued high level of performance. Each of Messrs. Porter’s and Gerlich’s 2008 base salaries slightly exceeded the 75^th percentile of peer group companies. The Committee believes that the higher salary level is appropriate considering the multiple roles that both executives perform their positions. Mr. Pettit’s base salary was set at $285,000 in August 2007 when he commenced employment with us. No adjustment was made to his base salary in 2008.

Because 2008 base salary amounts exceed the 75^th percentile, the Committee has elected not to increase 2009 base salaries for our executive officers.

15

Table of Contents

Annual Cash Incentive Awards. Our cash incentive awards reflect our philosophy to reward performance. These awards provide our named executive officers with an opportunity to earn an annual cash bonus based on pre-established operational and financial performance targets and an evaluation of individual performance. At the beginning of 2008, the Committee approved a $900,000 total Company target cash bonus pool, which was based on the sum of each employee’s “target bonus” opportunity expressed as a percentage of the employee’s base salary. The targeted bonus percentages of our CEO, CFO and COO were 50%, 35% and 25%, respectively. When combined with base salaries, those amounts approximated the 50^th percentile range of total cash compensation (base salary plus annual incentive awards) for similar executives with other peer group companies. The bonus pool is accrued throughout the year and bonuses are paid out the year following the performance period. The bonus pool is capped at the lesser of twice the target cash bonus pool total or 10% of earnings before interest, taxes and depreciation and amortization.

At the beginning of the year and as part of our budgeting process, specific operational and financial target criteria are established by the Committee. In developing the appropriate target criteria and their respective weightings, the Committee analyzes the relative importance of each of the target criteria to our business strategy for the upcoming fiscal year. Each criterion is given a certain weighting, with a majority of the 2008 weighting allocated to operational factors. During the year, operational and financial performance is measured against the criteria. Judgments that the criteria are being met or not being met may lead to an increase in the pool and an adjustment in the bonus accrual. Criteria and weightings used in 2008 were as follows:

If threshold targets are not met with respect to a criterion, then the portion of the bonus allocable to that criterion is not paid. At the end of the year, an approved bonus pool is calculated based on the bonus pool criteria accomplishments. The amount of the calculated bonus pool is subject to adjustment and final approval by the Committee. In 2008, based on a weighted average of actual results compared to targets, we exceeded the overall bonus pool target by 35%.

Mr. Porter’s annual target cash bonus is 50% of his annual base compensation. Based on our achievement of 35% over target goals, Mr. Porter was entitled to receive 35% more than his 50% target opportunity or a total of 68% of his base salary.

Mr. Gerlich’s annual target cash bonus is 35% of his annual base compensation. Based on our achievement of 35% over target goals, Mr. Gerlich was entitled to receive 35% more than his 35% target opportunity or a total of 47% of his base salary.

The Committee elected to increase the amount of the payout for Messrs. Porter and Gerlich to 77% and 52% of their base salaries, respectively. The Committee believed the increase over the target bonus percentage was warranted due to the successful efforts of Messrs. Porter and Gerlich in directing the continued development of the company’s assets, accessing the capital markets and negotiating an acceptable settlement of the GeoStar litigation. The Committee determined that these efforts warranted an increases in 2008 cash bonuses for Messrs. Porter and Gerlich of approximately 9% and 7%, respectively. Messrs. Porter and Gerlich received their 2008 bonus in restricted common shares, the number of which was determined by multiplying the dollar value of the award by the closing price of $0.52 per common share on the day prior to the grant. Accordingly, Messrs. Porter and Gerlich received 663,462 and 301,923 common shares, respectively. The common shares vested immediately upon grant.

16

Table of Contents

Mr. Pettit did not receive an annual bonus award for fiscal 2008 as a result of his resignation on November 11, 2008.

Long Term Stock-based Compensation. We believe that equity compensation is the most effective means of linking compensation provided to our named executive officers with long-term operational success and increases in shareholder value. The Board has discretionary authority to determine granting and vesting periods of stock option and restricted common share grants. We use stock-based compensation as a long-term vehicle for compensation because we believe:

Historically, we have used stock options as the equity compensation vehicle. In mid-2007, we began using grants of restricted common shares to employees as long-term compensation rather than stock options. This change occurred in response to the Committee’s judgment that to retain and attract qualified employees we needed a more definable deferred monetary incentive than was being provided by stock option grants. Currently, restricted common shares are granted to new hires at the time of employment and to all others, including our named executive officers, in the first half of the year, as determined by the Committee. The Committee adheres to the company policy of only granting stock-based compensation grants during open trading windows. The 2008 grants of restricted common shares vest in one-third increments on the second, third and fourth anniversaries of the grant. This vesting schedule was based on the CEO’s belief that a vesting schedule that delayed the initial vesting of shares until the second anniversary of the grant provides more incentive for retention of employees than might be provided by a shorter initial vesting period.

In May 2008, Messrs. Porter and Gerlich received a restricted common share grant of 225,000 shares and 150,000 shares, respectively. The restricted common shares granted to Messrs. Porter and Gerlich were part of a larger annual grant of restricted common shares to employees designed to retain employees and provide additional employee incentives. The Committee determined the size of the award by granting a number of shares that when multiplied by the closing price of $1.91 per common share on the day prior to the grant would result in an amount approximately equal to each named executive officer’s annual base salary.

Generally, Mr. Porter’s and Mr. Gerlich’s long term stock-based compensation awards have placed materially below the 50^th percentile of our peer group companies’ long term stock-based compensation, which target base pay percentages of 180% and 160%, respectively, for similar executives.

All Other Compensation. The named executive officers are eligible to participate on a non-discriminatory basis in the same comprehensive benefits as are offered to all full-time employees. These benefits are provided so as to assure that we are able to maintain a competitive position in terms of attracting and retaining executive officers and other employees. Additionally, Mr. Porter’s employment agreement provides that we will pay or reimburse him up to $25,000 for his membership dues in clubs and/or organizations as are reasonable and customary for a senior executive officer and will reimburse him for the cost of a yearly executive physical examination and all required or recommended medical testing in connection with that yearly examination. During 2008, we paid or reimbursed Mr. Porter a total of $36,576. See Note 3 to “Summary Compensation Table” for details of payment of perquisites to Mr. Porter in 2008. Messrs. Gerlich and Petit received no payments in the form of other compensation. The Committee reviews all perquisites and personal benefits available to the named executive officers at least annually.

Tax Deductions for Compensation

In conducting our executive compensation programs, the Committee considers the effects of Section 162(m) of the Internal Revenue Code (“Section 162(m)”), which denies publicly held companies a tax deduction for

17

Table of Contents

annual compensation in excess of $1.0 million paid to their chief executive officer or any of their four other most highly compensated corporate officers, other than the chief financial officer, who are employed on the last day of a given year, unless their compensation is based on performance criteria that are established by a compensation committee which is made up of outside directors and approved, as to their material terms, by our shareholders. While the Committee generally considers structuring and administering executive compensation plans and arrangements so that they will not be subject to the deduction limit under Section 162(m), the Committee may in the future approve payments that cannot be deducted in order to maintain flexibility in structuring appropriate compensation programs it feels to be appropriate.

Post Termination or Compensation and Benefits

On March 23, 2007, our Board of Directors approved a change of control severance plan, as amended February 15, 2008 (the “Severance Plan”), covering all employees, including the named executive officers. The purpose of the severance plan is to promote stability and continuity of management and employees in the event a change of control transaction should occur (as defined below). Pursuant to the terms of our Severance Plan, our named executive officers are entitled to receive certain post-termination compensation and benefits upon the occurrence of certain events. In order for the named executive officers to receive payments under the Severance Plan, the named executive officers would have to be terminated within two years of a change of control. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” and “Potential Payments upon Termination or Change of Control” below.

Hedging Prohibitions

Our insider trading policy prohibits our named executive officers from engaging in any speculative transactions involving our common shares including buying or selling puts or calls, short sales or purchases of securities on margin or otherwise hedging the risk of ownership of our stock. Any such activity would require the approval and authorization of either the CEO or the Chairman of the Audit Committee (in the case of a transaction involving our CEO).

Remuneration Committee Report

Board of Directors of Gastar Exploration Ltd.

The Remuneration Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on the review and discussions referred to above, the Remuneration Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the this proxy statement on Schedule 14A.

18

Table of Contents

The above Report of the Remuneration Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act or the Securities Exchange Act, except to the extent we specifically incorporates this proxy statement by reference therein.

Summary Compensation and Awards

The following table and discussion below sets forth information about the compensation awarded to, earned by or paid to our named executive officers during the years ended December 31, 2008, 2007 and 2006.

Summary Compensation Table for 2008

19

Table of Contents

The following table shows certain information about the number of restricted common shares granted to our named executive officers during the year ended December 31, 2008. There were no stock option grants to named executive officers in 2008.

Grants of Plan-Based Awards Table

For the Year Ended December 31, 2008

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

The following is a narrative of our various compensation plans and the general terms of each:

2002 Stock Option Plan. Our 2002 Stock Option Plan was approved and ratified by our shareholders in July 2002. It authorizes the Board of Directors to issue stock options to directors, officers, employees and consultants of the Company and its subsidiaries to purchase a maximum of 25.0 million common shares. Stock option grant expirations vary between five and ten years. The vesting schedule has varied from two years to four years but generally has occurred over a four-year period at 25% per year beginning on the first anniversary date of the grant. Stock options issued pursuant to our 2002 Stock Option Plan have an exercise price determined by the Board of Directors, but that exercise price cannot be less than the market price on the date immediately prior to the date of grant as reported by any stock exchange on which our common shares are listed. If a stock option granted under our 2002 Stock Option Plan expires or terminates for any reason in accordance with the terms of our Stock Option Plan, the unpurchased common shares subject to that stock option become available for other stock option grants.

In April 2004, the Board of Directors amended the provisions of our 2002 Stock Option Plan to specifically incorporate a provision to provide for stock options to be exercised on a cashless basis, whereby we issue to the optionee the number of common shares equal to the stock option exercised, less the number of common shares which when multiplied by the market price at the date of exercise equals the aggregate exercise price for all of the common shares exercised. As of December 31, 2008, stock option grants covering the issuance of 9,648,750 common shares were outstanding under the 2002 Stock Option Plan.

20

Table of Contents

2006 Gastar Long-Term Stock Incentive Plan. On June 1, 2006, our shareholders approved the 2006 Gastar Long-Term Stock Incentive Plan. The 2006 Gastar Long-Term Stock Incentive Plan authorizes our Board of Directors to issue stock options, stock appreciation rights, bonus stock awards and any other type of award established by the Committee, which is consistent with the Plan’s purposes to our directors, officers and employees and our subsidiaries covering a maximum of 5.0 million common shares. The contractual life and vesting period for a grant will be determined by the Board of Directors at the time the grant is awarded. The vesting period for restricted common stock grants during 2008 was over four years, with one-third vesting on the second, third and fourth anniversaries of the date of grant. As of December 31, 2008, grants covering the issuance of 2,533,898 restricted common shares were outstanding under the 2006 Gastar Long-Term Stock Incentive Plan. If restricted common shares granted under our 2006 Long-Term Stock Incentive Plan terminate for any reason in accordance with the terms of the 2006 Long-Term Stock Incentive Plan, the unvested common shares subject to that grant become available for other restricted common share grants.

All stock option grants incorporate the following features:

All grants of restricted common shares incorporate the following features:

In 2006 and a portion of 2007, stock options were granted to new hires at the time of employment and to all other employees, including our named executive officers, around the time of our annual meeting of shareholders. The Board of Directors has discretionary authority to determine granting and vesting periods of stock options. Typically, vesting periods have been over a four-year period with 25% vesting on the first, second, third and fourth anniversary dates. Certain stock options granted in 2006 to our CEO and certain technical managers vest over two years. Other stock options granted on the same date to the CFO and other employees vest over three years. The stock option awards having shorter vesting periods were granted to provide additional shorter term incentive to our named executive officers, certain technical and other employees. There were no stock option grants during 2008.

Pursuant to our stock-based incentive plans, the Board of Directors has designated the Remuneration Committee to administer the granting of stock options, restricted common stock grants and other forms of stock-based compensation. Grants are determined by the Committee, based on the recommendations of our CEO, except in the case of grants awarded to the CEO. In determining a grant to named executive officers, the Committee has taken into account the named executive officer’s position, the scope of his responsibilities, his ability to affect profits and shareholder value and the individual’s past and current individual performance and corporate performance.

Employee Severance Plan. A change of control is defined in the severance plan to mean (1) the consummation of a merger, consolidation, reorganization or other transaction whereby our shareholders retain less than 50% control, directly or indirectly, of us or the surviving company, (2) our incumbent directors cease to constitute a majority of the Board of Directors or (3) a sale or other disposition of all or substantially all of our

21

Table of Contents

assets. The Severance Plan does not change the specific, non-change of control severance payments in place under the existing employment agreements with our named executive officers but does provide change of control severance benefits to the named executive officers only if they are greater than the severance benefits provided under the employment agreement. The Severance Plan does not allow for any duplication of severance benefits.

For the named executive officers, the Severance Plan provides that if a named executive officer’s employment is terminated within two years following a change of control for any reason other than (i) death, (ii) disability, (iii) by us for “cause” or (iv) by the named executive officer for other than a “good reason,” the named executive officer will receive a lump-sum payment equal to a multiple that is equal to the applicable severance period, as set forth in the Severance Plan, times the sum of (1) his annual salary and (2) annual target bonus.

The following summarizes the severance periods and target bonus percentages for the named executive officers set forth in the Severance Plan:

Additionally, during the applicable severance period, named executive officers would receive reimbursement for the cost of COBRA continuation health care coverage, less the amount charged at the time of termination to the employee for medical coverage.

If the named executive officer receives a payment or benefit that is subject to the “golden parachute” excise tax, the named executive officer will receive an additional payment under the severance plan to make him or her “whole” for that excise tax and any taxes on the additional parachute tax gross-up payment.

If the individual’s employment is terminated within six months prior to a change of control and it is reasonably shown to have been in connection with the change of control, then the change of control will be treated with respect to that employee as having occurred prior to his or her termination.

Employment Agreements. We entered into employment agreements with J. Russell Porter, our President and CEO, and Michael A. Gerlich, our CFO, effective February 24, 2005, each as amended July 25, 2008, and May 17, 2005, respectively. The agreements with Messrs. Porter and Gerlich set forth, among other things, annual compensation, and adjustments thereto, minimum bonus payments, fringe benefits, termination and severance provisions. The agreements renew annually; however, they may be terminated at any time with or without cause. We entered into a letter agreement with our COO on August 21, 2007. The letter agreement set forth, among other things, our COO’s initial base salary, a guaranteed 2007 bonus, fringe benefits, such as vacation and medical insurance coverage, and severance provisions for his at will employment, which could be terminated at any time by us or our COO with or without cause. Our COO resigned effective November 10, 2008.

Mr. Porter’s employment agreement provides that he is entitled to an annual bonus in an amount that may take the form of cash compensation, the award of stock or stock options, royalty rights or otherwise and that he shall receive an annual cash bonus equal to at least 20% of his annual base salary. The employment agreement further provides that the bonuses shall reflect not only the results of our operations and business, but his contribution as President and CEO.

Mr. Gerlich’s employment agreement provides that the Committee may on a yearly basis, or more frequently, award Mr. Gerlich a discretionary bonus or bonuses based not only on the positive results of our operations and business, but Mr. Gerlich’s contribution as CFO. Such bonuses may take the form of cash compensation, the award of stock or stock options, royalty rights or otherwise.

22

Table of Contents

Salary and Cash Bonus in Proportion to Total Compensation

The following table sets forth the percentage of each named executive officer’s total compensation that we paid in the form of base salary and cash bonus for the year 2008.

Outstanding Equity Awards at Fiscal Year-End for 2008

The following table sets forth information about outstanding equity awards held by our named executive officers at fiscal year-end 2008:

23

Table of Contents

Option Exercises and Stock Vested for 2008

During the year ended December 31, 2008, our named executive officers had no restricted common shares vest and exercised no stock options.

Potential Payments Upon Termination or Change of Control

The table below discloses the amount of compensation and/or other benefits due to the named executive officers in the event of their termination of employment, including, but not limited to, in connection with a change in control. No amounts are shown for Mr. Pettit, who was a named executive officer during 2008, as he resigned effective November 11, 2008. Upon resignation, he was paid his salary to the date of his resignation and accrued vacation pay of $10,550. Mr. Pettit’s employment agreement contained a confidentiality provision that will be applicable following his resignation in November 2008. Pursuant to the confidentiality provision, he agreed to hold in confidence and not disclose any confidential and proprietary information about our business.

The amounts shown for Messrs. Porter and Gerlich below assume that such termination was effective as of December 31, 2008, and thus include amounts earned through such date and are estimates of the amounts that would be paid to the named executive officers upon their respective termination. The actual amounts to be paid out can only be determined at the time the executive is terminated.

24

Table of Contents

Per Mr. Gerlich’s employment agreement, if he is involuntarily terminated for any reason other than for Reasonable Cause (as defined below), he will be entitled to a lump sum severance payment equal to the product of 2.5 and the sum of (1) his highest annual base salary in effect at any time during the one year period preceding his termination (at December 31, 2008, this amount was $300,000) and (2) his target bonus amount of 35% of his base salary ($105,000). If Mr. Gerlich is considered a “specified employee” under Section 409A of the Code at the time of his termination, this payment will be delayed for a period of six months if necessary to avoid the additional tax under Section 409A of the Code. If Mr. Gerlich timely elects COBRA continuation coverage, he and his family will be entitled to continuation of health insurance at our expense, the “COBRA Continuation Period”. As of December 31, 2008, the cost for health and medical coverage for Mr. Gerlich and his family was $1,688 per month. If Mr. Gerlich dies during the COBRA Continuation Period, his family will be entitled to continuation of health insurance at our expense, subject to the limitations imposed by law and our insurance plan. At December 31, 2008, the maximum cost over the 18-month period would be $19,566 at $1,087 per month. In addition, Mr. Gerlich will receive a lump-sum cash payment of his unused vacation time of up to 10 days per each year employed, up to a maximum of 15 days. As of December 31, 2008, Mr. Gerlich had 13.1 days of available accrued but unused vacation pay. Per Mr. Gerlich’s stock option agreements, he will have 90 days after termination to exercise all vested options. As of December 31, 2008, Mr. Gerlich had 337,500 unvested stock options, but the exercise prices of all of Mr. Gerlich’s stock options were greater than the market price of our common shares and thus no amounts have been included in the table above. Additionally, on December 31, 2008, he had 287,500 unvested restricted common shares, but all such unvested restricted common shares would be canceled upon his termination.

25

Table of Contents

The employment agreements of Messrs. Porter and Gerlich generally use the following terms:

“Reasonable Cause” means any of the following (a) an act or omission that amounts to dishonesty, disloyalty, fraud, deceit, gross negligence, willful misconduct or recklessness, including the willful violation of any of our policies or procedures; (b) a felony conviction; (c) a breach of any material term of the employment agreement; (d) the refusal to perform any services that the named executive officer is required to perform under the employment agreement; or (e) with respect to Mr. Porter’s agreement only, an act that is determined by the vote of two-thirds of the shareholders to constitute “Reasonable Cause” or to be detrimental to our best interests.

“Disability” means the inability to perform the functions essential to the named executive officer’s position with or without accommodation during a continuous 12 month period, due to physical or mental illness of the named executive officer. The date of disability is the last day of the 12 month period. Successive periods of illness or injury that are due to the same or related causes are considered one period of disability unless the named executive officer returns to work full-time for three successive months. Except that Mr. Pettit’s employment agreement defines “disability” as the inability to perform all duties of his job for more than ninety days.

26

Table of Contents

Under Mr. Gerlich’s employment agreement, a “change of control” occurs as a result of a sale of all or substantially all of our assets, purchase of over 50% of our stock, or through merger, consolidation, corporate restructuring or otherwise.

The Severance Plan generally uses the following terms:

“Change of Control” means (1) the consummation of a merger, consolidation, reorganization or other transaction whereby our shareholders retain less than 50% control, directly or indirectly, of us or the surviving company, (2) our incumbent directors cease to constitute a majority of the Board of Directors or (3) a sale or other disposition of all or substantially all of our assets.

“Involuntary Termination” means any termination of employment that occurs within two years following a Change of Control and which (1) is by us other than for cause (but excluding a termination due to the employee’s failure to accept comparable employment), or (2) is by the employee for Good Reason. An “Involuntary Termination” does not include: (a) a termination of the employee by us for cause, (b) a termination of the employee due to his death or disability, (c) a voluntary resignation by the employee other than for Good Reason, or (d) any termination of the employee by the employer as a result of the employee declining to accept an offer of comparable employment with a successor employer.

“Good Reason” means the occurrence of any of the following events after a Change of Control: (1) relocating the covered employee’s place of employment without his consent to a place that would constitute a material change in his place of employment 2) reducing the covered employee’s annual base salary or (3) a substantial reduction in the covered employee’s position or responsibilities. In certain circumstances, the occurrence of one of these events within six months prior to the Change of Control may be Good Reason.

The Severance Plan provides that if any payment made, or benefit provided, to or on behalf of a covered employee pursuant to the plan or otherwise (“Payments”) results in a covered employee being subject to the excise tax imposed by Section 4999 of the Code (or any successor or similar provision) (“Excise Tax”), we shall, as soon as administratively practicable, pay such covered employee an additional amount in cash (the “Additional Payment”) such that after payment by the covered employee of all taxes, including, without limitation, any taxes imposed on the Additional Payment, such Covered Employee retains an amount of the Additional Payment equal to the Excise Tax imposed on the Payments. Such determinations shall be made by our independent certified public accounting firm.

Mr. Porter’s employment agreement contains a confidentiality provision applicable both during the term of his employment and following his termination of employment. Pursuant to the confidentiality provision, Mr. Porter agrees to hold in confidence and not disclose any confidential information about our business, except as required in the ordinary course of performing his employment duties with us. A breach of this confidentiality provision could result in a Reasonable Cause termination. Mr. Porter’s employment agreement further provides that, for a period of two years after his termination of employment with us for a reason other than Reasonable Cause, (six months if terminated for Reasonable Cause). Mr. Porter shall not compete with us directly or indirectly.

Mr. Gerlich’s employment agreement provides that, unless specifically pre-approved by the CEO in writing, which approval may not be unreasonably withheld, Mr. Gerlich will not directly compete (as defined in the employment agreement) with us for a period of two years following his termination of employment.

27

Table of Contents

DIRECTOR COMPENSATION

Prior to July 1, 2008, non-employee directors received the following fees:

Effective July 1, 2008, non-employee directors received the following fees:

We also grant to our non-employee directors stock options and restricted common shares under our two stock-based compensation plans in addition to their specified cash compensation to be paid as directors. These grants are, in part, to compensate our directors for the strict regulatory role in which they have to operate and to provide them with incentives to remain as a director by offering them a long-term stake in our potential future value. During the year ended December 31, 2008, Messrs. Badwi, Penner and Selser were each granted 100,000 restricted common shares. The grants vest over a four-year period (one-third on each of the second, third and fourth anniversaries of the grant). There were no stock options granted to Messrs. Badwi, Penner and Selser during the year ended December 31, 2008.

The following table shows certain information about non-employee director compensation for the year ended December 31, 2008:

Director Compensation for 2008

28

Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information about the beneficial ownership of common shares by:

The table below is based upon information supplied by officers, directors, certain named individuals, principal shareholders and from documents filed with the SEC. Applicable percentages are based on 211,332,963 common shares outstanding on April 15, 2009. To the knowledge of our directors and executive officers, as of April 15, 2009, no person, firm or corporation own, directly or indirectly, or exercise control or direction over voting securities carrying more than 5% of the voting rights attached to any class of our voting securities, except as indicated in the below. Unless otherwise indicated and subject to community property laws where applicable, management believes that all persons named in the following table have sole voting and investment power over all common shares reported as beneficially owned by them.

29

Table of Contents

30

Table of Contents

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Chesapeake Energy Corporation

On November 4, 2005, we completed an integrated transaction with Chesapeake Energy Corporation (“Chesapeake”) whereby Chesapeake acquired 27,151,641 of our newly issued common shares equal to 19.9% of the then outstanding common shares, acquired a 33.3% working interest in our Bossier play in the Hilltop area of East Texas and formed an area of mutual interest to explore jointly in 13 counties in East Texas. As part of this transaction, Chesapeake paid an additional $7.8 million, before fees and expenses, to reimburse us for Chesapeake’s pro rata share of leasehold interests acquired and to pay a disproportionate amount of future drilling costs in exchange for an undivided 33.3% of our leasehold working interests in the deep Bossier Hilltop prospect, less and except 160 acres surrounding each existing well bore. Chesapeake agreed to pay 44.44% of the drilling costs through casing point in the first six wells drilled by the parties in the Hilltop prospect to a depth sufficient to test the deep Bossier formation (an approximate depth of 19,000 feet) in order to earn its 33.33% leasehold working interest. The leasehold reimbursement was recorded as a reduction to natural gas and oil property cost.

As a result of its purchase of common shares, Chesapeake has the right to negotiate exclusively with us for a period of 30 days on any proposed sale of assets. Additionally, Chesapeake has the right, with certain exceptions, to maintain its percentage ownership of us, on a fully diluted basis, by participating in future stock issuances and has the right to an observer being present at meetings of the Board of Directors.

On November 11, 2006 and May 23, 2007, Chesapeake acquired an additional 5,000,000 of our common shares and 1,757,195 of our common shares, respectively, in private placement transactions. As of April 15, 2009, Chesapeake owned 33,908,836 of our common shares, or 16.0% of our outstanding common shares.

Policies Relating to Related Party Transactions

Our written policy or procedure for the review, approval or ratification of related party transactions is set forth in the Terms of Reference for the Audit Committee. The Audit Committee reviews and approves all related party transactions. In the course of its review, the Audit Committee considers the nature of the transactions and the costs to be incurred by us or payments to us; an analysis of the costs and benefits associated with the transaction and a comparison of comparable or alternative goods or services that are available to us from unrelated parties; the business advantage we would gain by engaging in the transaction; and an analysis of the significance of the transaction to us and to the related party. As a matter of course, any Audit Committee member that cannot be viewed as independent will withhold his vote, declaring his interest in the transaction. A vote of a majority of the remaining members is required to approve a related party transaction.

LEGAL PROCEEDINGS

The Company is party to various litigation matters arising out of the normal course of business. The ultimate outcome of the matters discussed below cannot presently be determined, nor can the liability that could potentially result from an adverse outcome be reasonably estimated at this time. The following litigation matter relates to a related party and is summarized below.

Navasota Resources L.P. (“Navasota”) vs. First Source Texas, Inc., First Source Gas L.P. (now Gastar Exploration Texas LP) and Gastar Exploration Ltd. (Cause No. 0-05-451) District Court of Leon County, Texas 12th Judicial District. This lawsuit, dated October 31, 2005, contends that the Company breached Navasota’s preferential right to purchase 33.33% of the Company’s interest in certain natural gas and oil leases located in Leon and Robertson Counties and sold to Chesapeake Energy Corporation pursuant to a transaction closed November 4, 2005. The preferential right claimed is under an operating agreement dated July 7, 2000. The Company contends, among other things, that Navasota neither properly nor timely exercised any preferential right election it may have had with respect to the inter-dependent Chesapeake transaction. In July 2006, the

31

Table of Contents

District Court of Leon County, Texas issued a summary judgment in favor of the Company and Chesapeake. Navasota filed a Notice of Appeal to the Tenth Court of Appeals in Waco. Oral argument was heard on September 26, 2007 and the Court of Appeals issued its opinion on January 9, 2008 reversing the trial court’s rulings, rendering judgment in favor of Navasota on its claims for breach of contract and specific performance, and remanding the case for further proceedings on Navasota’s other counts, which include claims for suit to quiet title, trespass to try title, tortious interference with contract, conversion, money had and received, and declaratory relief. The Company and Chesapeake filed a motion for rehearing on February 6, 2008, which was denied on March 18, 2008. The Company and Chesapeake filed a joint Petition for Review in the Texas Supreme Court on May 13, 2008. On August 28, 2008, the Texas Supreme Court requested briefing on the merits. On January 9, 2009, the Texas Supreme Court denied the Petition for Review. On January 26, 2009, the Company and Chesapeake jointly filed a motion for rehearing in the Texas Supreme Court on its denial of the Petition for Review, which prompted the Texas Supreme Court to request additional responsive briefing from Navasota by March 10, 2009.

Pursuant to a provision in the November 4, 2005 Purchase and Sale and Exploration Development Agreement with Chesapeake, Chesapeake acknowledged the existence of the Navasota lawsuit and claims and further agreed that if Navasota were to prevail on its claims, that Chesapeake would convey the affected interests it purchased from the Company to Navasota upon receipt of the purchase price and/or other consideration paid by Navasota. Therefore, the Company believes that if Navasota seeks to exercise rights of specific performance, its doing so should impact only Chesapeake’s assigned leasehold interests. However, in December 2008, Chesapeake stated to the Company that if the Texas Supreme Court were not to reverse the decision of the Tenth Court of Appeals, Chesapeake would seek rescission of the 2005 transaction and restitution of consideration paid. Chesapeake may assert such rescission and restitution as to the November 4, 2005 Purchase and Sale and Exploration Development Agreement; a November 4, 2005 Exploration and Development Agreement; and a November 4, 2005 Common Share Purchase Agreement. In its December 2008 communication, Chesapeake did not identify particular sums as to which it may seek restitution, but amounts paid to the Company in connection with the 2005 transaction could be asserted to include the $76.0 million paid by Chesapeake for the purchase of 27.2 million common shares as part of the transaction in 2005 and/or other amounts. Chesapeake has not further advised the Company of its intentions with respect to any rescission or restitution claim since the Texas Supreme Court issued its denial of the Petition for Review, and Navasota has not further advised the Company of its intentions with respect to acquiring any of the interests assigned to Chesapeake. If Chesapeake were to seek rescission or restitution, the Company would vigorously defend any such action.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Directors, executive officers, and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of such information furnished to us, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers, and greater than 10% beneficial owners were complied with during the year ended December 31, 2008.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended December 31, 2008, the Compensation Committee of the Board of Directors, which we refer to as the Remuneration Committee, was comprised of three independent directors: Messrs. Badwi (Chairman), Penner and Selser. None of these directors who served on the Remuneration Committee in fiscal year 2008 is or has ever served as one of our officers or employees. None of our executive officers serves or has served as a director or member of the Board of Directors or Compensation Committee (or committee performing similar functions) of any other entity, one or more of whose executive officers serve on our Board of Directors or Remuneration Committee.

32

Table of Contents

INDEPENDENT ACCOUNTANTS, FEES AND POLICIES

The Board of Directors has determined, upon the recommendation and approval of the Audit Committee, to appoint BDO Seidman, LLP, as our independent registered public accounting firm for the year ending December 31, 2009.

During the two years ended December 31, 2008 and 2007, there were no disagreements between us and BDO Seidman, LLP on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedures, which disagreements, if not resolved to BDO Seidman, LLP’s satisfaction, would have caused BDO Seidman, LLP to make reference to the subject matter of the disagreement in connection with its reports. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the two most recent fiscal years ended December 31, 2008 and 2007 and subsequent interim periods to the date hereof.

Representatives of BDO Seidman, LLP are expected to be present at the Annual Meeting and will be available to respond to appropriate questions. They will also have the opportunity to make a statement if they desire to do so.

Summary of Audit Fees

Aggregate fees billed for professional services rendered to us by BDO Seidman, LLP, our principal independent registered public accounting firm, and BDO Dunwoody LLP for the years ended December 31, 2008 and 2007 were:

The audit fees for the years ended December 31, 2008 and 2007 were primarily for professional services rendered in connection with the audit of our consolidated financial statements; fees related to the issuance of our 12 ³/ 4% senior secured notes in 2007 and the issuance of our term loan in February 2009; fees related to our compliance with the Sarbanes-Oxley Act of 2002; and services rendered in connection with quarterly reviews of financial statements and various documents filed with various governmental agencies. Fees for tax services were for services related to tax compliance, including the preparation of tax returns. During 2008, other accounting

33

Table of Contents

fees included reviews of certain accounting pronouncements and matters related to corporate structure. The Audit Committee has determined that the provisions of the non-audit services by BDO Dunwoody LLP are compatible with maintaining its independence.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee pre-approves all audit and non-audit services provided by our independent registered public accounting firm prior to its engagement with respect to such services. In addition to separately approved services, the Audit Committee’s pre-approval policy provides for pre-approval of all audit and non-audit services provided by our independent registered public accounting firm.

PARTICULARS OF MATTERS TO BE ACTED UPON AT THE 2009 ANNUAL MEETING

Proposal 1. Fixing the Number of Directors at Four

The Board of Directors currently is fixed by the shareholders at four members. Four persons have been proposed for election to the Board of Directors at the Annual Meeting. Our Amended and Restated Articles of Incorporation provide that the Board of Directors be comprised of a minimum of three and a maximum of 15 members. Our Bylaws require the shareholders to fix the number of the Board of Directors. Accordingly, a proposal to fix the number of members of the Board of Directors at four is being presented to shareholders for approval at the Annual Meeting.

The affirmative vote of a majority of the votes cast in person or by proxy is required to fix the Board at four members.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” THE PROPOSAL TO FIX THE NUMBER OF MEMBERS OF THE BOARD OF DIRECTORS AT FOUR.

Proposal 2. Election of the Board of Directors

As of the Record Date, the Board of Directors consists of four directors; the terms of each will expire on the date of the Annual Meeting. Based upon the recommendation of the Nomination Committee, Messrs. Porter, Penner and Selser have been nominated for re-election to the Board of Directors at this Annual Meeting. Mr. Badwi will not stand for re-election at the Annual Meeting, which is the end of his term. The Nomination Committee has nominated John R. Rooney, a Canadian citizen, to replace Mr. Badwi and stand for election at the Annual Meeting. If any nominee should become unavailable for election, your proxy may be voted for a substitute nominee selected by the Board of Directors, or the Board’s size may be reduced accordingly. The Board of Directors is unaware of any circumstances likely to render any nominee unavailable. Our directors hold office until our next annual meeting of shareholders, until successors are elected and qualified or until their earlier resignation of removal. The following biographies set forth information as of April 15, 2009 concerning the nominees for directors.

J. Russell Porter, 47, has been a member of the Board of Directors and has served as our President and Chief Executive Officer since February 2004 and was appointed Chairman of the Board in August 2006. From September 2000 to February 2004, he served as our Chief Operating Officer. Mr. Porter has an energy focused background, with approximately 18 years of natural gas and oil exploration and production experience and five years of banking and investment experience specializing in the energy sector. From April 1994 to September 2000, Mr. Porter served as an Executive Vice President of Forcenergy, Inc., a publicly traded exploration and production company, where he was responsible for the acquisition and financing of the majority of its assets across the United States and Australia. He currently is a director of Caza Oil & Gas, Inc., a publicly traded exploration and development company listed on the Toronto Stock Exchange and the London AIM exchange. Mr. Porter holds a Bachelor of Science degree in Petroleum Land Management from Louisiana State University and a MBA from the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill.

34

Table of Contents

Robert D. Penner, 65, became a member of the Board of Directors effective July 16, 2007. Mr. Penner retired from his position as a senior partner with KPMG in 2004, after a career of advising public and private clients on tax and accounting matters for almost 40 years. He currently serves on the Board of Directors for Sustainable Energy Technologies Ltd., a manufacturer and seller of electronic components for grid-connected solar power systems; and Corridor Resources Ltd., Storm Cat Energy Corporation, Terra Energy Corp. and Unbridled Energy Corporation, each involved in the exploration, development and production of natural gas and oil. In addition, Mr. Penner serves on the Board of Directors or as Executor/Trustee for several private companies and family trusts.

John M. Selser Sr., 50, became a member of the Board of Directors effective March 30, 2007. He has been a partner at Maple Leaf Partners, a Baton Rouge, Louisiana based hedge fund, since 2003. From 1992 to 2003, Mr. Selser was an energy equity analyst for several sell-side firms. From 1984 to 1991, Mr. Selser was a petroleum engineer for major oil companies in various domestic drilling, production and reservoir engineering assignments. Mr. Selser holds a Bachelor of Science in both Civil Engineering and Petroleum Engineering from Louisiana State University, Baton Rouge, Louisiana and a Masters of Business Administration from Tulane University, New Orleans, Louisiana.

John R. Rooney, 52, has been named by the Nomination Committee to stand for election to the Board of Directors at the Annual Meeting. Mr. Rooney has served as Chief Executive Officer and a director of Tusk Energy Corp. from December 2006 until April 2008, when Tusk was sold to TIAA-Cref, a large U.S. pension fund. He has also served as President, Chief Executive Officer and a director of Zenas Energy Corp. from August 2005 to January 2007, as President, Chief Executive Officer and a director of Blizzard Energy Inc. from December 2002 to July 2005, as Vice President and Chief Financial Officer and then President and Chief Executive Officer of Equatorial Energy Inc. from May 1999 to June 2002, as Vice President and Chief Financial Officer of Calgary Louisiana Energy LLC from July 1997 to May 1999, as an originator and organizer of a private drilling fund from May 1997 to March 1999, as Vice President and Chief Financial Officer of Tidal Resources Inc. from June 1993 to January 1997, and as an accountant and other positions for Ernst & Young and Clarkson Gordon from January 1980 to December 1992. Mr. Rooney is currently a director of Caza Oil & Gas, Inc., a public natural gas and oil exploration and production company, Export Development Canada, a crown corporation, and numerous private entities. Mr. Rooney is a graduate of the University of Western Ontario (Bachelor of Arts – Economics) and is a Chartered Accountant and a Chartered Business Valuator.

Messrs. Porter and Selser are citizens of and reside in the United States. Messrs. Penner and Rooney are citizens of and reside in Canada. There are no family relationships between any of our directors or executive officers. The Board of Directors has determined that the nominees for election to our Board of Directors, with the exception of Mr. Porter, have no material relationship with us (either directly or as partners, shareholders or officers of an organization that has a relationship with us) and are independent within the meaning of the NYSE Alternext US LLC and National Instrument 58-101 director independence standards. Mr. Porter, as our President and Chief Executive Officer, is not considered to be independent.

With respect to the election of directors, the four director nominees who receive the greatest number of votes cast by the holders of common shares present in person or by proxy and entitled to vote shall be elected as directors.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES.

On March 11, 2009, the Audit Committee recommended and approved the appointment of BDO Seidman, LLP, as our independent registered public accounting firm, for the year ending December 31, 2009. BDO

35

Table of Contents

Seidman, LLP served as our independent registered public accounting firm during the year ended December 31, 2008. See “Independent Accountants, Fees and Policies” on page 33. We are seeking shareholder ratification of such appointment. If the shareholders do not ratify the appointment, the Audit Committee will consider whether it should appoint another independent registered public accounting firm.

Representatives of BDO Seidman, LLP are expected to be present at the Annual Meeting and will be available to respond to appropriate questions. They will also have the opportunity to make a statement if they desire to do so.

Unless otherwise directed, it is management’s intention to vote the proxies in favor of an ordinary resolution to ratify the appointment of the firm of BDO Seidman, LLP as our independent registered public accounting firm.

The affirmative vote of a majority of the votes cast in person or by proxy is required to ratify the appointment of BDO Seidman, LLP.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO RATIFY THE APPOINTMENT OF THE FIRM OF BDO SEIDMAN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2009.

Proposal 4. Approval of Amendments to the 2006 Long-Term Stock Incentive Plan

Management will be presenting to its shareholders proposed amendments to the Gastar Exploration Ltd. 2006 Long-Term Stock Incentive Plan (the “Plan”) for approval. The Plan was initially adopted by the Board of Directors and approved by the shareholders in 2006. Currently, the Plan authorizes the Board of Directors to issue stock options, stock appreciation rights, bonus stock awards and any other type of award consistent with the Plan’s purpose to directors, officers and employees of the Company and its subsidiaries covering a maximum of 5.0 million shares of common stock of the Company (“Common Shares”). As of April 1, 2009, 3,102,148 Common Shares are issuable pursuant to unvested restricted stock awards outstanding under the Plan and 1,539,423 Common Shares have been issued pursuant to vested restricted stock awards granted under the Plan (of which 407,178 Common Shares were surrendered back to the Company in satisfaction of tax withholding obligations, but are not available for reissuance under the Plan). Assuming none of the 3,102,148 restricted Common Shares outstanding are surrendered, cancelled or forfeited prior to their vesting, there would be 358,429 Common Shares available for issuance pursuant to future awards under the Plan. In the event that all of the 3,102,148 restricted Common Shares outstanding are either surrendered, cancelled or forfeited prior to their vesting, a total of 3,460,577 Common Shares would be available for issuance pursuant to future awards under the Plan.

The Company also maintains the Stock Option Plan of Gastar Exploration Ltd. (the “Stock Option Plan”) which provides for the grant of only stock options to directors, officers, employees and consultants of the Company and its subsidiaries to purchase a maximum of 25.0 million Common Shares. As of April 1, 2009, stock option grants covering the issuance of 10,660,250 Common Shares were outstanding under the Stock Option Plan and 5,892,800 Common Shares were available for issuance pursuant to future grants under the Stock Option Plan. Assuming all of the outstanding stock options covering the issuance of 10,660,250 Common Shares are exercised prior to their expiration, and none of such stock options are surrendered, cancelled or forfeited prior to their expiry, a total of 5,892,800 Common Shares would be available for issuance pursuant to future stock option awards under the Stock Option Plan. Assuming none of the outstanding stock options covering the issuance of 10,660,250 Common Shares are exercised prior to expiration, and accordingly all such stock options are either surrendered, cancelled, forfeited or expired, a total of 16,553,050 Common Shares would be available for issuance pursuant to future stock option awards under the Stock Option Plan.

The Board of Directors now desires to merge the Stock Option Plan into the Plan so that all outstanding equity awards and all future equity awards to be made to employees, officers and directors will be under one

36

Table of Contents

plan—the Plan. The Board of Directors therefore proposes, subject to shareholder approval, to merge the Stock Option Plan with and into the Plan, resulting in the cessation of the existence of the Stock Option Plan and the transfer of all Common Shares previously reserved for issuance under for the Stock Option Plan to the Common Share reserve under the Plan. The Board of Directors believes that merging the Stock Option Plan into the Plan and transferring all Common Shares previously reserved for issuance under the Stock Option Plan to the Common Share reserve under the Plan will enable the Company to attract and retain the best available employees and directors and promote the success of the business of the Company. Upon the consummation of the merger of the Stock Option Plan into the Plan, there will be outstanding under the Plan (i) stock options covering the issuance of 10,660,250 Common Shares and (ii) 3,102,148 unvested restricted Common Shares. Accordingly, upon the consummation of the merger of the Stock Option Plan into the Plan, subject to adjustment pursuant to Section 11(a) of the Plan, a maximum of between (i) 6,251,229 Common Shares (this maximum number assumes that all outstanding stock options will be exercised prior to their expiration and all outstanding restricted Common Shares will vest) and (ii) 20,013,627 Common Shares (this maximum number assumes that none of the outstanding stock options will be exercised prior to their expiration and none of the outstanding restricted Common Shares will vest and, accordingly, that all Common Shares issuable pursuant to such unexercised or forfeited awards will be forfeited or surrendered back to the Common Share reserve under the Plan) will be available for issuance pursuant to future awards under the Plan.

Accordingly, effective April 24, 2009, our Board of Directors approved the merger amendments to the Plan subject to shareholder ratification and approval at the Company’s Annual Meeting. Also effective April 24, 2009, our Board of Directors approved amendments to the Plan, subject to shareholder approval, to: (a) provide that the Committee (as defined below), in its discretion, may provide in an award agreement that an individual who is granted an award under the Plan (a “participant”) may elect to have Common Shares withheld from (or “netted against”) the total number of Common Shares otherwise issuable to such participant pursuant to his award in order to pay the exercise or purchase price of such award and/or to satisfy all employer tax withhold obligations with respect to the participant’s award under the Plan, (b) clarify that Common Shares issuable under the Plan and forfeited back to the Plan will be deemed not to have been issued under the Plan and will again be available for the grant of an award under the Plan, (c) provide that Common Shares withheld from (or “netted against”) an award granted under the Plan for payment of (1) the exercise or purchase price of an award and (2) all applicable employer tax withholding obligations associated with an award will be deemed not to have been issued under the Plan and will again be available for the grant of an award under the Plan, (d) provide that the maximum number of Common Shares that may be subject to stock options, bonus stock awards, and stock appreciation rights granted to any one individual during any calendar year may not exceed 1,000,000 Common Shares (subject to adjustment pursuant to Section 11(a) of the Plan) and (e) provide that the definition of “performance criteria” in the Plan include a criteria relating to the growth of proved natural gas and oil reserves of the Company. The following summary of the Plan, as amended to reflect the proposed amendments, is qualified in its entirety by reference to the complete text of the Plan. The complete text of the Plan and First Amendment to the Plan is attached to this Proxy Statement as Appendix B.

General Provisions

The Remuneration Committee (the “Committee”) administers the Plan with respect to awards to our officers, employees and directors. In the future, the Board of Directors or other committees may be allocated some or all of the Committee’s duties. The Committee consists solely of two or more non-employee directors in accordance with the Internal Revenue Code of 1986, as amended (the “Code”) and Rule 16b-3 under the Securities Exchange Act. The Committee is authorized to:

37

Table of Contents

Our officers, employees and directors, in addition to those of our affiliates (solely with respect to officers and employees), are eligible to be selected to participate in the Plan. Also, the members of our Board of Directors are eligible to be selected to participate in the Plan. Incentive stock options may be granted only to our employees and employees of our subsidiaries in which the Company owns directly or indirectly more than a 50% voting equity interest. The Committee has the sole discretion to select participants from among the eligible persons.

Effective as of April 1, 2009, the aggregate number of Common Shares which may be issued pursuant to (i) future awards granted under the Plan and (ii) awards outstanding under the Plan as of April 1, 2009, including awards granted under the Stock Option Plan that remained outstanding as of the date of its merger into the Plan, may not exceed 20,013,627, which number represents 9.5% of the number of the currently issued and outstanding Common Shares. This maximum limit is subject to adjustment for certain transactions affecting the Common Shares. Lapsed, forfeited or canceled awards will not count against this maximum limit and will again be available for the grant of an award under the Plan. However, the cancellation of an option upon exercise of a stock appreciation right granted in tandem with the option will count against the limit. In addition, if Common Shares are withheld from payment of an award to pay the exercise or purchase price of the award or to satisfy employer tax withholding obligations with respect to the award, those Common Shares will not count against the maximum limit and will again be available for the grant of an award under the Plan. Any and all Common Shares available under the Plan may be granted to any officer, employee or director during the term of the Plan. However, no individual may receive stock options, stock appreciation rights, bonus stock awards or any combination thereof under the Plan during any calendar year, which would entitle that individual to be issued more than 1,000,000 Common Shares which number represents 0.5% of the number of the currently issued and outstanding Common Shares. This individual, annual limit is subject to adjustment for certain transactions affecting the Common Shares. The Common Shares issued under the Plan may be issued from (1) authorized but unissued Common Shares, (2) Common Shares held in the treasury of the Company, or (3) previously issued Common Shares reacquired by the Company, including Common Shares purchased on the open market, in each situation as the Committee may determine from time to time in its sole discretion.

Types of Awards

The Plan provides for the grant of:

Any stock option granted in the form of an incentive stock option must comply with Section 422 of the Code. The Committee may grant awards individually, in combination, or in tandem.

General Award Provisions

All awards will be evidenced by award agreements, as determined by the Committee. The award will be effective on the date of grant unless the Committee specifies otherwise.

Generally, the exercise price or other measurement of stock value relative to any award granted under the Plan will be determined by the Committee and will be at least equal to the fair market value of the Common

38

Table of Contents

Shares, as determined on the date the award is granted. The fair market value generally is determined to be the closing sales price quoted on any established United States stock exchange (i.e., currently for the Company, the NYSE Alternext USA) on the date immediately preceding the date of the grant of the award.

Awards will normally terminate on the earliest of (i) 10 years from the date of grant; (ii) for an incentive stock option granted to a 10% shareholder, five years from the date of grant of the stock option; (iii) three months after the participant is no longer serving in any capacity as an officer, employee or director of the Company for a reason other than the death or disability of the participant; (iv) one year after death; or (v) one year after disability. Bonus stock awards that are subject to forfeiture restrictions, however, generally will terminate and be forfeited back to the Company immediately upon the termination of a participant’s continuous service prior to the lapse of the applicable forfeiture restrictions. The terms of an individual award agreement may provide for extended periods upon termination of employment or service and may provide for automatic termination of the award upon termination of employment or service for cause. Unvested grants of restricted common shares are cancelled effective on the date of an individual’s termination.

Awards are non-transferable except by disposition on death or to certain family members, trusts and other family entities as the Committee may approve.

The Committee may authorize the assumption of awards granted by other entities that are acquired by the Company or otherwise. Awards may be paid in cash, Common Shares or a combination, in lump sum or installments and currently or by deferred payment, all as determined by the Committee.

A participant’s breach of the terms of the Plan or the award agreement will result in a forfeiture of the award.

Stock Options

Stock options granted under the Plan may be:

The Committee selects the recipients of stock options and sets the terms of the stock options, including:

The Committee determines how a stock option may be exercised, whether for cash or securities. Arrangements may also be made, if permitted by law, for same-day-sale and margin account transactions through FINRA dealers. A stock option agreement or the Committee’s procedures may set forth conditions respecting the exercise of a stock option. The Committee may in its discretion waive any condition respecting the exercise of any stock option and may accelerate the time at which any stock option is exercisable.

Bonus Stock

The Committee will have discretion to make grants of bonus stock. A bonus stock grant entitles the recipient to acquire, at no cost or for a purchase price determined by the Committee on the date of the grant, Common Shares are subject to such restrictions and conditions, as the Committee may determine at the time of the grant. If

39

Table of Contents

bonus stock is granted subject to restrictions, it is referred to as restricted stock. The recipient may have all the rights of a shareholder with respect to the bonus stock. These rights include voting and dividend rights, and they are effective as soon as:

A grant of bonus stock may be subject to non-transferability restrictions, repurchase and forfeiture provisions and such other conditions (including conditions on voting and dividends) as the Committee may impose at the time of grant.

Any bonus Common Shares that are subject to restrictions at the time of grant cease to be restricted stock and will be deemed “vested” after the lapse of all restrictions. The Committee generally may, in its discretion, waive any condition or restriction related to a grant of restricted stock or accelerate the dates on which a grant of restricted stock vests. The Committee may not waive, however, any forfeiture restriction applicable to a restricted stock award that was designed to be “performance-based compensation” under Section 162(m) of the Code.

If a participant’s employment or service is terminated for any reason prior to Common Shares of restricted stock becoming vested, the Company has the right, in the discretion of the Committee, to:

Stock Appreciation Rights

The Committee may decide that stock appreciation rights may be granted separately or in tandem with the grant of a stock option. A stock appreciation right is a grant entitling the participant to receive an amount in cash or Common Shares or a combination thereof, as the Committee may determine, in an amount equal to the increase in the fair market value between the grant and exercise dates of the Common Shares with respect to which the stock appreciation right is exercised.

A stock appreciation right granted in tandem with a nonqualified stock option may be granted either at or after the time of the grant of the nonqualified option. A stock appreciation right granted in tandem with an incentive stock option may be granted only at the time of the grant of the incentive stock option. A stock appreciation right granted in tandem with a stock option terminates and is no longer exercisable upon the termination or exercise of the related stock option. The Committee may set the terms and conditions of stock appreciation rights, subject to the limitations set forth in the Plan. At any time, it may accelerate the exercisability of any stock appreciation right and otherwise waive or amend any conditions to the grant of a stock appreciation right.

Performance-Based Compensation

In general, under Section 162(m) of the Code, income tax deductions of publicly held corporations may be limited to the extent total compensation for certain executive officers exceeds $1.0 million in any one year. However, under Section 162(m), the deduction limit does not apply to certain “performance-based compensation”.

Market-priced stock options and stock appreciation rights granted under the Plan will automatically qualify as performance-based awards that are fully deductible without regard to the $1 million deduction limit imposed by Section 162(m). The Committee may designate other types of awards granted under the Plan as “qualified performance-based compensation” in order to make those awards fully deductible under Section 162(m),

40

Table of Contents

provided certain requirements set forth in Section 162(m) and the Treasury regulations and other authoritative guidance issued thereunder are met. If an award is so designated, the Committee must establish objectively determinable performance goals for the award based on one or more of the following performance criteria, which may be expressed in terms of Company-wide objectives or in terms of objectives that relate to the performance of a division, affiliate, department or function within the Company or an affiliate:

The Committee must establish the goals prior to the beginning of the period for which these goals relate (or such later date as may be permitted under applicable tax regulations), and the Committee may not increase any award or, except in the case of certain qualified terminations of employment, waive the achievement of any specified goal. Any payment of an award granted with performance goals will be conditioned on the written certification of the Committee in each case that the performance goals and any other material conditions were satisfied.

41

Table of Contents

Provisions Relating to a Change in Control, Death or Disability

The Plan provides certain benefits in the event of a change in control. A change in control is deemed to have occurred if:

Generally, upon the occurrence of a change in control, our Board of Directors will negotiate for the surviving entity or other purchaser involved to assume all of our obligations under all outstanding awards or convert all outstanding awards into awards of at least equal value as to capital stock of that surviving entity or purchaser. If that surviving entity or purchaser does not agree to assume or convert all outstanding awards, then all outstanding awards will immediately vest or become exercisable or payable, and all forfeiture restrictions will lapse, unless the related agreements provide otherwise.

Upon the occurrence of a participant’s death or disability, an agreement may provide that the outstanding award will immediately vest or become exercisable or payable.

Provisions Relating to Amendment or Termination of the Plan

The Board of Directors in its discretion may, at any time or from time to time, terminate or amend the Plan in any respect, including amendment of any form of award agreement, exercise agreement, or instrument to be executed pursuant to the Plan; provided, however, to the extent necessary to comply with the Code, including Sections 162(m) and 422 of the Code, other applicable laws, or the applicable requirements of any stock exchange or national market system, the Company will obtain shareholder approval of any Plan amendment in such manner and to such a degree as required. No award may be granted after termination of the Plan. Any amendment or termination of the Plan will not affect awards previously granted, and such awards will otherwise remain in full force and effect as if the Plan had not been amended or terminated, unless mutually agreed otherwise in a writing (including an award agreement) signed by the participant and the Company.

Federal Income Tax Consequences

The Code provides that a participant receiving a nonqualified option ordinarily does not realize taxable income upon the grant of the option. A participant does, however, realize income upon the exercise of a nonqualified option to the extent that the fair market value of the Common Shares on the date of exercise exceeds the option price. The Company is entitled to a federal income tax deduction for compensation in an amount equal to the ordinary income so realized by the participant. This deduction is conditioned on the Company withholding federal income and employment taxes from the compensation realized by the participant. When the participant sells the Common Shares acquired pursuant to a nonqualified option, any gain or loss will be capital gain or loss. This assumes that the Common Shares represent a capital asset in the participant’s hands, although there will be no tax consequences for the Company.

The grant of an incentive stock option does not result in taxable income to an employee. The exercise of an incentive stock option also does not result in taxable income, provided that the circumstances satisfy the

42

Table of Contents

requirements in the Code. However, the exercise of an incentive stock option may give rise to alternative minimum tax liability for the employee. In addition, if the employee does not dispose of the Common Shares acquired upon exercise of an incentive stock option during the statutory holding period, then any gain or loss upon subsequent sale of the Common Shares will be a long-term capital gain or loss. This assumes that the Common Shares represent a capital asset in the employee’s hands.

The statutory holding period lasts until the later of:

If the employment and statutory holding period requirements are satisfied, the Company may not claim any federal income tax deduction upon either the exercise of the incentive stock option or the subsequent sale of the Common Shares received upon exercise. If these requirements are not satisfied, the amount of ordinary income taxable to the employee is the lesser of:

Any excess is long-term or short-term capital gain or loss, assuming the Common Shares represent a capital asset in the employee’s hands. The Company is entitled to a federal income tax deduction in an amount equal to the ordinary income realized by the employee.

An award of bonus stock that is not subject to restrictions results in taxable income to the participant in an amount equal to the excess of the fair market value of the bonus Common Shares on the date of grant over the amount paid, if any, for those Common Shares. Under Section 83(b) of the Code, a participant may elect to include in ordinary income, as compensation at the time restricted stock is first issued, the excess of the fair market value of the stock at the time of issuance over the amount paid, if any, by the participant. Unless a Section 83(b) election is made, no taxable income will generally be recognized by the recipient of a restricted stock award until the Common Shares are no longer subject to the restrictions or the risk of forfeiture. When either the restrictions or the risk of forfeiture lapses, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the Common Shares on the date of lapse over the amount paid, if any, by the participant for the stock. Absent a Section 83(b) election, any cash dividends or other distributions paid with respect to the restricted stock prior to the lapse of the restrictions or risk of forfeiture will be included in the participant’s ordinary income as compensation at the time of receipt.

Generally, a participant will not recognize any taxable income upon the award of stock appreciation rights. At the time the participant receives the payment for the stock appreciation right, the fair market value of Common Shares or the amount of any cash received in payment for such award generally is taxable to the participant as ordinary income.

As a general rule, the Company will be entitled to a deduction for federal income tax purposes at the same time and in the same amount that a participant recognizes ordinary income from awards under the Plan. The amount of the deduction is the amount of the award that is considered reasonable compensation under the Code.

Section 162(m) of the Code generally disallows a federal income tax deduction to any publicly held corporation for compensation paid in excess of $1.0 million in any taxable year to the chief executive officer or any of the four other most highly compensated executive officers who are employed by the corporation on the last day of the taxable year, but does not disallow a deduction for performance-based compensation the material terms of which are disclosed to and approved by shareholders. The Company has structured and intends to implement the Plan so that resulting compensation would be performance-based compensation, where applicable. To allow the Company to qualify the compensation as “performance-based,” the Board of Directors of the Company is seeking shareholder reapproval of the Plan and the material terms of the related performance goals.

43

Table of Contents

The exercisability of an option or a stock appreciation right or the elimination of restrictions on restricted stock may be accelerated, and special cash settlement rights may be triggered and exercised, as a result of a change in control.

If any of the foregoing occurs, all or a portion of the value of the relevant award at that time may be a parachute payment. This is relevant for determining whether a 20% excise tax (in addition to income tax otherwise owed) is payable by the participant as a result of the receipt of an excess parachute payment pursuant to the Code. The Company will not be entitled to a deduction for that portion of any parachute payment which is subject to the excise tax.

Not all of the important information about the Plan and the proposed amendments are contained in the foregoing summary. The complete text of the Plan and First Amendment is attached to this Proxy Statement as Appendix B.

Recommendation

The complete text of the ordinary resolution which management intends to place before the Meeting for approval, confirmation and adoption, with or without modification is as follows:

“Be it resolved as an ordinary resolution that:

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO RATIFY AND APPROVE THE AMENDMENTS TO THE COMPANY’S 2006 LONG-TERM STOCK INCENTIVE PLAN.

This proposal will be approved if there is:

SHAREHOLDER PROPOSALS AND NOMINATIONS

Any shareholder who wishes to submit a proposal for inclusion in the proxy materials for our 2010 Annual Meeting must comply with the requirements of Rule 14a-8 under the Exchange Act. Under Rule 14a-8, such proposal must be submitted to our Secretary at the address indicated on the cover page of this Proxy Statement, so that the Secretary receives it no later than December 31, 2009. However, if the date of the 2010 annual meeting of shareholders is changed by more than 30 days from June 4, 2010, the deadline is a reasonable time prior to our printing of the proxy materials, which deadline will be communicated to the shareholders in our public filings.

44

Table of Contents

ADDITIONAL INFORMATION

Additional information relating to us is available on SEDAR at www.sedar.com and filed with the SEC at www.sec.gov. Shareholders may contact us at 1331 Lamar Street, Suite 1080, Houston Texas 77010 to request at no charge copies of our 2008 Annual Report on Form 10-K and financial statements for the year ended December 31, 2008.

*    *     *

45

Table of Contents

Appendix A

GASTAR EXPLORATION LTD.

AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS

TERMS OF REFERENCE

Composition

Responsibilities

A-1

Table of Contents

Meetings

Reporting

A-2

Table of Contents

Appendix B

GASTAR EXPLORATION LTD.

2006 LONG-TERM STOCK INCENTIVE PLAN WITH FIRST AMENDMENT ATTACHED

B-1

Table of Contents

B-2

Table of Contents

B-3

Table of Contents

B-4

Table of Contents

B-5

Table of Contents

B-6

Table of Contents