EX-99.1

EX-99.1 2 d623833dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

This Exhibit 99.1 sets forth certain information regarding Gastar Exploration USA, Inc. (the “Company,” “Gastar,” “we,” us,” or “our”) and Gastar Exploration Ltd. (the “Parent”). Unless otherwise stated herein, pro forma financial, reserve and production information and 2013 estimates assume the successful completion of (i) our pending acquisition (the “WEHLU Acquisition”) of approximately 24,000 net acres of Mid-Continent oil and gas leasehold interests in the West Edmond Hunton Lime Unit (“WEHLU”) located in Kingfisher, Logan, Oklahoma and Canadian counties, Oklahoma expected to close concurrently with the notes offered hereby (the “WEHLU Assets”) and the related financing, (ii) our June 7, 2013 acquisition of approximately 157,000 net acres of Mid-Continent oil and gas leasehold interests primarily located in the Mid-Continent area in Oklahoma, including a small interest acquired from an entity controlled by the former chief executive officer of Chesapeake Energy Corporation (the “Chesapeake Acquisition”), (iii) our sale of approximately 12,800 net acres and 50% of the interest in 62 producing wells acquired in the Chesapeake Acquisition (effective October 1, 2012) to our partner in an area of mutual interest in Oklahoma (the “AMI”) on July 1, 2013, pursuant to the exercise of its rights within the AMI in connection with the properties acquired in the Chesapeake Acquisition (the “AMI Election Disposition”) (iv) the sale to Newfield Exploration Mid-Continent Inc. of approximately 76,000 net acres in Kingfisher and Canadian Counties, Oklahoma and our acquisition from Newfield of approximately 2,260 net acres of Oklahoma oil and gas leasehold interests, each completed on August 6, 2013 (the “Newfield Disposition” and, together with the Chesapeake Acquisition and the AMI Disposition, the “Chesapeake Acquisition and Related Dispositions”) and (v) the sale to Cubic Energy, Inc. of approximately 31,800 gross (16,300 net) acres of leasehold interests in the Hilltop area of East Texas in Leon and Robertson Counties, Texas, including production from interests in producing wells completed on October 2, 2013 (the “East Texas Disposition”).

Pro forma for the pending WEHLU Acquisition, we will control a total of 65,200 net acres in the Marcellus Shale and 123,500 net acres in the Mid-Continent area. Additionally, we will increase our consolidated Mid-Continent position to approximately 475 net potential drilling locations in areas prospective for our Hunton Limestone horizontal oil play. We expect to complete the WEHLU Acquisition on November 15, 2013.

Our Properties

The following table presents summary data for each of our primary areas of development as of September 30, 2013, unless otherwise indicated, each on a pro forma basis to reflect the Chesapeake Acquisition and Related Dispositions, the East Texas Disposition and the pending WEHLU Acquisition based on SEC pricing for reserves.


			Identified Drilling Locations⁽¹⁾		2013 Budget						Pro Forma Estimated Net Proved Reserves as of June 30, 2013⁽³⁾					Pro Forma Average Daily Production for the Three months ended September 30, 2013
	Net Acreage		Net Remaining⁽²⁾		Gross Wells		Net Wells		Drilling Capex (in millions)		Bcfe		Developed (%)			(MMcfe/d)		(MBoe/d)
Marcellus Shale, West Virginia and Pennsylvania:
Marcellus West		13,700		56.5		19		9.5	$	51.9		205.9		62	%		42.5		7.1
Marcellus East		51,500		—		—		—		—		0.3		100	%		0.5		0.1
Mid-Continent:
Existing⁽⁴⁾		99,500		275.0		11		5.7		41.5		15.3		100	%		7.0		1.2
Pending WEHLU Acquisition⁽⁵⁾		24,000		200.0		1		1.0		2.2		74.4		47	%		12.1		2.0

Pro forma total^(4)(5)(6)		188,700		531.5		31		16.2	$	95.6		295.9		60	%		62.1		10.4

⁽¹⁾

Our identified potential drilling locations in the Marcellus Shale area are actual surface locations that have been specifically identified by management for future drilling units based on an evaluation of applicable geological, seismic, engineering, production and reserve data on nearby acreage and geological formations, including successful drilling efforts by other operators in the area. In identifying potential drilling locations in the Marcellus Shale area, we have assumed 400-foot well spacing, which we have recently successfully tested. Potential drilling locations in the Mid-Continent area have been identified along the geological trend believed to be most prospective for middle and lower Hunton Limestone development, which is supported by information from thousands of vertical wells that intersect the Hunton Limestone formation and by recent horizontal drilling along the trend by us, our operating partner and other operators. In identifying potential drilling locations in the Mid-Continent area, the number of lower Hunton locations is based upon 320-acre well spacing and drainage. Under Oklahoma forced pooling rules, we believe that all available net acres identified along the geological trend can be utilized. We have not committed to drill any specific number of our potential drilling locations. For the WEHLU Assets, we assume the Upper Hunton (Bois d’Arc) Limestone will be developed on 80-acre well spacing and the Lower Hunton (Chimney Hill) Limestone based on 120-acre well spacing.

⁽²⁾	Of the 531.5 net pro forma total drilling locations, 76.1 net locations were associated with proved undeveloped reserves.

⁽³⁾

Our estimated proved reserves and related future net revenues and PV-10 at June 30, 2013 were determined using benchmark prices that are the 12-month unweighted arithmetic average of the first-day-of-the-month prices for natural gas and oil. Key natural gas prices utilized were the Henry Hub price of $3.44 per MMBtu. NSAI utilized an average West Texas Intermediate (“WTI”) posted oil price of $88.13 per barrel, and Wright utilized a WTI spot oil price of $91.60 per barrel. Our reserve engineers utilized an NGLs per Bbl price of approximately 30% of the WTI spot oil price. These prices are held constant in accordance with SEC definitions and guidelines for the life of the wells included in the reserve reports but are adjusted by lease in accordance with sales contracts and for energy content, quality, transportation, compression and gathering fees and regional price differentials. Estimated quantities of proved reserves and future

net revenues are affected by natural gas and oil prices, which have fluctuated significantly in recent years. All of our proved reserves are located onshore within the United States

⁽⁴⁾

Includes reserves and production associated with the properties purchased in the Chesapeake Acquisition on June 7, 2013. Excludes estimated acreage, drilling locations, reserves and production associated with oil and gas properties sold in the AMI Election Disposition on July 1, 2013 and in the Newfield Disposition on August 6, 2013, net of estimated acreage, drilling locations, reserves and production associated with oil and gas properties purchased in the Newfield Disposition.

⁽⁵⁾

Includes estimated acreage, drilling locations, reserves and production associated with the WEHLU Assets that will be purchased in connection with the pending WEHLU Acquisition. WEHLU Acquisition reserves are as of August 1, 2013, the effective date of the acquisition, based on June 30, 2013 SEC pricing.

⁽⁶⁾	Excludes estimated acreage, drilling locations, reserves and production associated with oil and gas properties sold in the East Texas Disposition on October 2, 2013.

Pro forma for the Chesapeake Acquisition and Related Dispositions, the East Texas Disposition and the pending WEHLU Acquisition, liquids production would have been approximately 43% of total production volume for the first nine months of 2013.

Certain Historical And Pro Forma Financial Data

The following tables set forth summary historical consolidated financial data for the years ended December 31, 2010, 2011 and 2012, the nine months ended September 30, 2012 and 2013. The annual historical financial data are derived from our audited consolidated financial statements and the notes thereto included in our periodic reports filed with the SEC under the Securities Exchange Act of 1934, as amended (our “Periodic Reports”). The data for the nine months ended September 30, 2012 and 2013 are derived from our unaudited condensed consolidated financial statements included in our Periodic Reports. The data for the twelve months ended September 30, 2013 are derived from our audited and unaudited condensed consolidated financial statements included in our Periodic Reports and our accounting records, which are also unaudited. This data should be read in conjunction with, and is qualified in its entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto included in our Periodic Reports.

The pro forma financial data presented for the year ended December 31, 2012 and as of and for the twelve months ended September 30, 2013 are derived from our pro forma condensed consolidated financial statements included herein.

The pro forma balance sheet data as of September 30, 2013 has been prepared assuming the WEHLU Acquisition and related financing and the East Texas Disposition were consummated on September 30, 2013. The impact of the Chesapeake Acquisition and related financing is already reflected in the historical balance sheet financial information at September 30, 2013. The pro forma statements of operations data for the year ended December 31, 2012 and for the nine months ended September 30, 2013 have been prepared assuming the Chesapeake Acquisition and related financing, the repurchase of 6,781,768 shares of Parent’s common stock from Chesapeake, the settlement of litigation with Chesapeake, the AMI Election Disposition, the East Texas Disposition, the pending WEHLU Acquisition and related financing were consummated on January 1, 2012. The Newfield Disposition was a disposition of undeveloped oil and gas leasehold interests and is accounted for as an adjustment of capitalized costs, with no gain recognized as such adjustment would not significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to our or Parent’s full cost pool. Therefore, the Newfield Disposition has no impact on the statement of operations.

The pro forma financial data have been prepared for illustrative purposes only and do not purport to be indicative of the actual results for the period indicated or that may be realized in the future. Although management believes the assumptions used in preparing these pro forma financial results are reasonable, these assumptions may not be correct. As a result, actual results could differ materially. These pro forma financial statements should be read in conjunction with, and are qualified in their entirety by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included in our Periodic Reports. The summary pro forma data below include the pro forma effects of the pending WEHLU Acquisition. Actual results for the pending WEHLU Acquisition for such period may differ. See “Unaudited Condensed Combined Pro Forma Financial Statements” for pro forma financial information.


																Pro Forma⁽¹⁾
	Year Ended December 31,									Nine Months Ended September 30,						Year Ended December 31, 2012			Twelve Months Ended September 30, 2013
	2010			2011			2012			2012			2013			Year Ended December 31, 2012			Twelve Months Ended September 30, 2013
	(audited)									(unaudited)						(unaudited)
	(in thousands)
Statements of Operations Data:
Revenues
Natural gas		$30,811			$33,391			$33,829			$22,499			$34,673			$30,224			$41,654
Condensate and oil		742			3,416			12,377			7,748			22,823			47,033			66,317
NGLs		—			1,092			9,300			6,394			10,690			14,515			19,274
Unrealized hedge (loss) gain		11,214			2,336			(5,566	)		(4,123	)		(7,156	)		(5,566	)		(8,599	)

Total revenues		42,767			40,235			49,940			32,518			61,030			86,206			118,646
Expenses
Production taxes		370			620			2,269			1,494			3,112			4,348			6,346
Lease operating expenses		6,676			8,629			6,174			4,754			6,196			11,768			13,806
Transportation, treating and gathering		4,654			4,501			4,965			3,715			3,386			1,340			960
Depreciation, depletion and amortization		9,306			15,216			25,424			19,744			21,428			37,289			43,092
Impairment of natural gas and oil properties		—			—			150,787			150,787			—			150,787			—
Accretion of asset retirement obligation		396			534			388			284			358			412			493
General and administrative expense		13,468			10,434			10,732			8,105			10,935			10,732			13,562
Litigation settlement expense		21,744			—			1,250			1,250			1,000			1,250			1,000

Total expense		56,614			39,934			201,989			190,133			46,415			217,926			79,259

(Loss) income from operations		(13,847	)		301			(152,049	)		(157,615	)		14,615			(131,720	)		39,387
Other income (expense)
Gain on acquisition of assets at fair value		—			—			—			—			43,712			—			—
Interest expense		(97	)		(112	)		(271	)		(87	)		(7,593	)		(25,710	)		(32,931	)
Investment and other (expense) income		1,238			95			(4	)		(4	)		(5	)		(4	)		(5	)
Foreign transaction gain		354			1			2			2			(11	)		2			(11	)

(Loss) income before provision for income taxes		(12,352	)		285			(152,322	)		(157,704	)		50,718			(157,432	)		6,440
Provision for income tax (benefit)		(804	)		—			—			—			—			—			—

Net (loss) income		(11,548	)		285			(152,322	)		(157,704	)		50,718			(157,432	)		6,440
Dividend on Preferred Stock		—			(1,024	)		(7,077	)		(4,947	)		(6,398	)		(12,828	)		(14,279	)

Net loss attributable to common stockholder		$(11,548	)		$(739	)		$(159,399	)		$(162,651	)		$44,320			$(170,260	)		$(7,839	)

Other Financial Data (Unaudited):
Adjusted EBITDA⁽²⁾		$9,150			$16,327			$34,661			$21,148			$49,466			$66,879			$98,200
Normalized Adjusted EBITDA⁽³⁾		9,150			16,327			41,741			26,192			59,914			73,959			110,684
Drilling Capital Expenditures		36,814			65,835			120,750			84,448			69,500
Land Acquisition and Other Expenditures		24,638			19,552			25,676			20,842			16,559

Pro Forma Credit Statistics (Unaudited):
Ratio of net debt to Adjusted EBITDA⁽⁴⁾																				2.7x
Ratio of Adjusted EBITDA to interest expense⁽⁵⁾																				3.5x
Net debt to NYMEX proved reserves (Bcfe) at June 30, 2013⁽⁴⁾																				$0.89
NYMEX PV-10 at June 30, 2013 to net debt⁽⁴⁾⁽⁶⁾																				2.2x
Normalized Pro Forma Credit Statistics⁽³⁾ (Unaudited):
Ratio of net debt to Normalized Adjusted EBITDA⁽⁴⁾																				2.4x
Ratio of Normalized Adjusted EBITDA to interest expense⁽⁵⁾																				3.9x


	As of September 30, 2013
	Actual		Pro Forma⁽⁷⁾
	(unaudited)
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents		$21,362		$58,220
Property and equipment, net		367,613		502,522
Total assets		424,360		587,815
Total long-term debt		194,830		316,393
Total stockholders’ equity		127,917		177,992

(1)	Pro forma adjustments for the statements of operations and Adjusted EBITDA give effect to the Chesapeake Acquisition and related financing, the AMI Election Disposition, the East Texas Disposition and the pending WEHLU Acquisition as if they were consummated on January 1, 2012.

(2)

EBITDA and Adjusted EBITDA are not alternative measures of operating results of cash flows from operations, as determined in accordance with GAAP. We have included EBITDA and Adjusted EBITDA because we believe they are indicative measures of operating performance and our ability to meet our debt service requirements and are used by investors and analysts to evaluate companies with our capital structure. As presented by us, EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. EBITDA and Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income, net income (loss), cash flow and other measures of financial performance and liquidity reported in accordance with GAAP.

(3)

Normalized Adjusted EBITDA further adjusts Adjusted EBITDA to reflect for illustrative purposes only our management estimate of what our operating performance would have been for the applicable periods if there had not been production curtailments related to high line pressures and unscheduled downtime of mid-stream assets owned and operated by Williams which service our Marcellus West properties. We are continuing to work with the gathering system operator to resolve recurring production curtailment issues on our operated Marcellus Shale wells. Currently, we are experiencing no curtailment issues however, there can be no assurance that such issues can be fully ameliorated quickly, or at all. Normalized Adjusted EBITDA is not an alternative measure of operating result of cash flows from operations, as determined in accordance with GAAP, nor does it represent our actual operating results for the periods presented.

(4)	Pro forma net debt represents our indebtedness net of our unrestricted cash as of September 30, 2013 after giving effect to the WEHLU Acquisition and related financing, the Chesapeake Acquisition and Related Dispositions and the East Texas Disposition.

(5)	Represents the ratio of Adjusted EBITDA and Normalized Adjusted EBITDA to as adjusted interest expense on the notes offered hereby.

(6)	PV-10 is a non-GAAP financial measure as defined by the SEC. Production Data—NYMEX Case Reserves.”

(7)	Pro forma adjustments give effect to the Chesapeake Acquisition and related financing, the AMI Election Disposition, the East Texas Disposition and the pending WEHLU Acquisition and related financing as if they were consummated on January 1, 2012.

Reconciliation of Non-GAAP Financial Measures

The following table reconciles net loss in accordance with GAAP to EBITDA, Adjusted EBITDA and Normalized Adjusted EBITDA:


																Pro Forma^(a)
	Year Ended December 31,									Nine Months Ended September 30,						Twelve Months Ended December 31, 2012			Twelve Months Ended September 30, 2013
	2010			2011			2012			2012			2013			Twelve Months Ended December 31, 2012			Twelve Months Ended September 30, 2013
	(audited)									(unaudited)
	(in thousands)
Net (loss) income attributable to common stockholder	$	(11,548	)	$	(739)		$	(159,399	)	$	(162,651	)	$	44,320		$	(170,260	)	$	(7,839	)
Plus:
Dividends on Preferred Stock		—			1,024			7,077			4,947			6,398			12,828			14,279
Depreciation, depletion and amortization		9,306			15,216			25,424			19,744			21,428			37,289			43,092
Impairment of natural gas and oil properties		—			—			150,787			150,787			—			150,787			—
Interest expense		97			112			271			87			7,593			25,710			32,931
Income tax benefit		(804	)		—			—			—			—			—			—

EBITDA		(2,949	)		15,613			24,160			12,914			79,739			56,354			82,463
Other adjustments:
Accretion of asset retirement obligation		396			534			388			284			358			412			493
Stock option expense		2,765			2,612			3,295			2,575			2,540			3,295			3,260
Litigation settlement expense^(b)		21,744			—			1,250			1,250			1,000			1,250			1,000
Gain on acquisition of assets at fair value		—			—			—			—			(43,712	)		—			—
Non-recurring general and administrative costs related to acquisition of assets		—			—			—			—			1,710			—			1,710
Non-recurring severance costs related to property divestment		—			—			—			—			659			—			659
Investment income and other		(1,238	)		(95	)		4			4			5			4			5
Foreign transaction gain^(c)		(354	)		(1	)		(2	)		(2	)		11			(2	)		11
Unrealized hedge (gain) loss		(11,214	)		(2,336	)		5,566			4,123			7,156			5,566			8,599

Adjusted EBITDA	$	9,150		$	16,327		$	34,661		$	21,148		$	49,466		$	66,879		$	98,200
Impact from unscheduled downtime^(d)		—			—			7,080			5,044			10,448			7,080			12,484

Normalized Adjusted EBITDA	$	9,150		$	16,327		$	41,741		$	26,192		$	59,914		$	73,959		$	110,684

(a)	Pro forma adjustments give effect to the Chesapeake Acquisition and related financing, the AMI Election Disposition, the East Texas Disposition and the pending WEHLU Acquisition as if they were consummated on January 1, 2012.

(b)

Litigation settlement expense for fiscal year 2010 primarily resulted from our settlement with the plaintiffs in the ClassicStar Mare Lease litigation suits in December 2010. Litigation settlement expense for fiscal year 2012 primarily resulted from our settlement with Navasota Resources LP in April 2012. Litigation settlement expense for the three months ended March 31, 2013 resulted from an accrual for settlement of the Chesapeake litigation.

(c)	Foreign exchange gain for fiscal year 2010 primarily resulted from Australian denominated cash and accounts receivable balances. The Australian properties were sold in 2009.

(d)

Represents an adjustment to reflect the estimated impact of unscheduled downtime from mid-stream assets which service our Marcellus West properties, which includes incremental production for the unscheduled downtime assuming an average daily production rate equal to the average daily production immediately prior to the downtime at our actual average monthly sales prices.

Summary Historical and Pro Forma Production Data

The following table summarizes our historical pro forma net production volumes, natural gas and oil sales and average sales prices for the periods indicated:


	Year Ended December 31, 2012									Nine Months Ended September 30, 2013
	Historical Gastar USA			Pro Forma Gastar USA Prior to WEHLU Acquisition			Pro Forma Gastar USA After WEHLU Acquisition			Historical Gastar USA			Pro Forma Gastar USA Prior to WEHLU Acquisition		Pro Forma Gastar USA After WEHLU Acquisition
Production:
Natural gas (MMcf)		10,564			6,970			7,904			10,257			8,117		8,814
Condensate and oil (MBbls)		177			240			557			333			348		644
NGLs (MBbls)		270			292			438			347			353		476

Total production (MMcfe)		13,247			10,163			13,869			14,338			12,325		15,539
(MMBoe)		2.2			1.7			2.3			2.4			2.1		2.6
Daily production:
Natural gas (MMcf/d)		28.9			19.0			21.6			37.6			29.7		32.3
Condensate and oil (MBbls/d)		0.5			0.7			1.5			1.2			1.3		2.4
NGLs (MBbls/d)		0.7			0.8			1.2			1.3			1.3		1.7

Total production (MMcfe/d)		36.2			27.8			37.9			52.5			45.1		56.9
Revenues (in thousands):
Natural gas	$	33,829		$	27,907		$	30,224		$	34,673		$	28,941	$	31,438
Condensate and oil		12,377			18,004			47,033			22,823			24,081		52,505
NGLs		9,300			9,981			14,515			10,690			10,897		14,913
Unrealized hedge loss		(5,566	)		(5,566	)		(5,566	)		(7,156	)		(7,156)		(7,156	)

Total revenues	$	49,940		$	50,326		$	86,206		$	61,030		$	56,763	$	91,700

Average sales prices (including the impact of realized hedging):
Natural gas ($/Mcf)	$	3.20		$	4.00		$	3.82		$	3.38		$	3.57	$	3.57
Condensate and oil ($/Bbl)		70.01			75.07			84.51			68.54			69.21		81.49
NGLs ($/Bbl)		34.40			34.16			33.16			30.80			30.83		31.30
Average sales price ($/Mcfe)		4.19			5.50			6.62			4.76			5.19		6.36
Average sales price ($/Boe)		25.14			33.00			39.70			28.53			31.12		38.17

UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS

On September 4, 2013, we agreed to acquire a 98.3% working interest (80.5% net revenue interest) in 24,000 net acres of the West Edmond Hunton Lime Unit located in Kingfisher, Logan and Oklahoma Counties, Oklahoma, for a cash purchase price of $187.5 million, subject to, among other customary adjustments, adjustment for an acquisition effective date of August 1, 2013.

The closing of the WEHLU Acquisition is subject to satisfaction of customary closing conditions and delivery of the total acquisition purchase price. This pro forma information was prepared assuming that the purchase price for the pending WEHLU Acquisition will be funded from pro forma cash on hand, net proceeds from the issuance of 2,140,000 shares of Series B Perpetual Preferred Stock, which we expect to complete on November 7, 2013, at a dividend rate of 10.75% and the issuance of $125.0 million of additional 8.625% senior secured notes. The actual sources of funding of the purchase price and amounts from various sources may differ.

On October 2, 2013, we and our subsidiary sold to Cubic Energy, Inc. approximately 31,800 gross (16,300 net) acres of leasehold interests in the Hilltop area of East Texas in Leon and Robertson Counties, Texas, including production from interests in producing wells, for an adjusted cash purchase price of approximately $43.9 million.

On June 7, 2013, we purchased from Chesapeake Exploration, L.L.C. and Larchmont Resources, L.L.C. approximately 157,000 net acres of Mid-Continent oil and gas leasehold interests, including production from interests in 176 net producing locations in Oklahoma, for approximately $69.4 million. The Chesapeake Acquisition had an effective date of October 1, 2012. In connection with the Chesapeake Acquisition, we entered into a Settlement Agreement with the Chesapeake Parties. In order to effect a mutual full and unconditional release and settlement of all claims made in a lawsuit filed by Chesapeake, we agreed to pay Chesapeake approximately $10.8 million in cash, approximately $9.8 million of which to repurchase 6,781,768 outstanding common shares of the Company’s common stock held by Chesapeake (the “Chesapeake Share Repurchase”). The Chesapeake Share Repurchase was also completed on June 7, 2013. Subsequent to the closing of the Chesapeake Acquisition, on July 1, 2013, our partner in an original AMI in Oklahoma elected to exercise its rights within the AMI and acquired approximately 12,820 net acres and 50% of the interest acquired in 62 producing wells (effective October 1, 2012) previously acquired by us as part of the Chesapeake Acquisition for a cash purchase price of $12.1 million.

On May 15, 2013, we issued $200.0 million aggregate principal amount of its 8 5/8% Senior Secured Notes due 2018 in the May 2013 Senior Notes Offering. The net proceeds from the offering were used to (i) finance the Chesapeake Acquisition and the Chesapeake Share Repurchase and to settle litigation with Chesapeake, (ii) repay in full borrowings under the prior revolving credit facility and (iii) for general corporate purposes.

On August 6, 2013, (i) Newfield Exploration Mid-Continent Inc. acquired approximately 76,000 net acres of undeveloped oil and gas leasehold interests in Kingfisher and Canadian Counties, Oklahoma from us for an adjusted cash purchase price of approximately $54.0 million and (ii) we acquired approximately 2,260 net acres of Oklahoma undeveloped oil and gas leasehold interests from Newfield through a downward adjustment to the purchase price. The Newfield Divestiture had an effective date of May 1, 2013.

The following unaudited pro forma financial information is derived from our historical audited and unaudited financial statements and the audited and unaudited statements of revenues less direct operating expenses of the Chesapeake Assets and the WEHLU Assets, and reflect the impact of the WEHLU Acquisition, East Texas Disposition, and the Chesapeake Acquisition and Related Dispositions. Our Unaudited Pro Forma Combined Balance Sheet as of September 30, 2013 has been prepared assuming the WEHLU Acquisition and East Texas Divestiture were consummated on September 30, 2013. The impact of the Chesapeake Acquisition and Related Dispositions are already reflected in historical balance sheet at September 30, 2013. Our Unaudited Pro Forma Combined Statements of Operations for the year ended December 31, 2012 and for the nine month period ended September 30, 2013 have been prepared assuming the WEHLU Acquisition, East Texas Disposition and the Chesapeake Acquisition and Related Dispositions were consummated on January 1, 2012. The Newfield Disposition is a disposition of undeveloped oil and gas leasehold interests and is accounted for as an adjustment of capitalized costs, with no gain recognized as such adjustment would not significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to our or Parent’s full cost pool. Therefore, the Newfield Disposition has no impact on the statement of operations. The probable WEHLU Acquisition is assumed to be financed through the issuance of $53.5 million of Series B Perpetual Preferred Stock with a dividend rate of 10.75% expected to be issued by Gastar USA, an additional issuance of $125.0 million of 8.625% senior secured notes and the utilization of a portion of pro forma cash on hand.

These unaudited pro forma combined financial statements should be read in conjunction with the notes hereto and the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2012, as amended, and the Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2013, as well as the Statement of Revenues and Direct Operating Expenses of the Chesapeake Acquisition Properties filed as exhibit 99.1 to the Current Report on Form 8-K/A dated October 25, 2013 and the Statement of Revenues and Direct Operating Expenses of the WEHLU Acquisition Properties filed as exhibit 99.2 to the Current Report on Form 8-K dated October 28, 2013, each as jointly filed by us and Parent.

The unaudited pro forma financial information is not indicative of the financial position or results of operations that would have actually occurred if the transaction had occurred at the dates presented or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, reductions in prices paid for oil or natural gas, future acquisitions or dispositions and other factors.

Gastar Exploration USA, Inc.

Unaudited Pro Forma Combined Balance Sheet

as of September 30, 2013


	Gastar USA Historical			Pro Forma Adjustments						Pro Forma Prior to WEHLU Acquisition			Pro Forma Adjustments			Pro Forma After WEHLU Acquisition
	Gastar USA Historical			East Texas Disposition			Preferred Stock Offering Adjustments			Pro Forma Prior to WEHLU Acquisition			WEHLU Acquisition			Pro Forma After WEHLU Acquisition
	(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	21,362		$	39,189	^(a)	$	50,075	^(e)	$	110,626		$	(52,406	)^(g)	$	58,220
Accounts receivable, net of allowance for doubtful accounts of $514		10,696			—			—			10,696			—			10,696
Commodity derivative contracts		2,259			—			—			2,259			—			2,259
Prepaid expenses		587			—			—			587			—			587

Total current assets		34,904			39,189			50,075			124,168			(52,406	)		71,762

PROPERTY, PLANT AND EQUIPMENT:
Natural gas and oil properties, full cost method of accounting:
Unproved properties, excluded from amortization		102,338			—			—			102,338			13,025	^(h)		115,363
Proved properties		769,046			(48,179	)^(b)		—			720,867			170,063	^(h)		890,930

Total natural gas and oil properties		871,384			(48,179	)		—			823,205			183,088			1,006,293
Furniture and equipment		2,409			—			—			2,409			—			2,409

Total property, plant and equipment		873,793			(48,179	)		—			825,614			183,088			1,008,702
Accumulated depreciation, depletion and amortization		(506,180	)		—			—			(506,180	)		—			(506,180	)

Total property, plant and equipment, net		367,613			(48,179	)		—			319,434			183,088			502,522
OTHER ASSETS:
Commodity derivative contracts		7,399			—			—			7,399			—			7,399
Deferred charges, net		2,133			—			—			2,133			1,063	⁽ⁱ⁾		3,196
Advances to operators and other assets		12,311			—			—			12,311			(9,375	)^(j)		2,936

Total other assets		21,843			—			—			21,843			(8,312	)		13,531

TOTAL ASSETS	$	424,360		$	(8,990	)		50,075			465,445		$	122,370		$	587,815

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,611		$	—			—			5,611		$	—		$	5,611
Revenue payable		12,063			—			—			12,063			—			12,063
Accrued interest		6,469			—			—			6,469			—			6,469
Accrued drilling and operating costs		2,727			—			—			2,727			—			2,727
Advances from non-operators		12,951			—			—			12,951			—			12,951
Commodity derivative contracts		794			—			—			794			—			794
Commodity derivative premium payable		1,819			—			—			1,819			—			1,819
Asset retirement obligation		750			—			—			750			—			750
Other accrued liabilities		7,974			(4,700	)^(c)		—			3,274			—			3,274

Total current liabilities		51,158			(4,700	)		—			46,458			—			46,458

LONG-TERM LIABILITIES:
Long-term debt		194,830			—			—			194,830			121,563	^(k)		316,393
Commodity derivative contract premium payable		7,651			—			—			7,651			—			7,651
Asset retirement obligation		7,999			(4,290	)^(d)		—			3,709			807	^(l)		4,516
Due to parent		34,805			—			—			34,805			—			34,805

Total long-term liabilities		245,285			(4,290	)		—			240,995			122,370			363,365

Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; 3,958,160 shares issued and outstanding at September 30, 2013		40			—			21	^(f)		61			—			61
Common stock, no par value; 1,000 shares authorized; 750 shares issued and outstanding		225,431			—			—			225,431			—			225,431
Additional paid-in capital		76,734			—			50,054	^(f)		126,788			—			126,788
Accumulated deficit		(174,288	)		—			—			(174,288	)		—			(174,288	)

Total shareholders’ equity		127,917			—			50,075			177,992			—			177,992

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	424,360		$	(8,990	)		50,075			465,445		$	122,370		$	587,815

See accompanying notes to unaudited pro forma combined financial statements.

Gastar Exploration USA, Inc.

Unaudited Pro Forma Combined Statement of Operations

for the Nine Months Ended September 30, 2013


				Pro Forma Adjustments												Pro Forma Adjustments
	Gastar USA Historical			Chesapeake Acquisition and Related Dispositions⁽¹⁾			East Texas Disposition			Preferred Stock Offering			Pro Forma Prior to WEHLU Acquisition			WEHLU Acquisition			Pro Forma After WEHLU Acquisition
	(in thousands)
Revenues:
Natural gas	$	34,673		$	1,940	^(m)	$	(7,672	)^(s)		—		$	28,941		$	2,497	^(x)	$	31,438
Condensate and oil		22,823			2,260	^(m)		(1,002	)^(s)		—			24,081			28,424	^(x)		52,505
NGLs		10,690			207	^(m)		—			—			10,897			4,016	^(x)		14,913

Total natural gas, oil and NGLs revenues		68,186			4,407			(8,674	)		—			63,919			34,937			98,856
Unrealized hedge loss		(7,156	)		—			—			—			(7,156	)		—			(7,156	)

Total revenues		61,030			4,407			(8,674	)		—			56,763			34,937			91,700
Expenses:
Production taxes		3,112			227	⁽ⁿ⁾		(25	)^(t)		—			3,314			1,669	^(y)		4,983
Lease operating expenses		6,196			1,255	⁽ⁿ⁾		(2,294	)^(t)		—			5,157			5,683	^(y)		10,840
Transportation, treating and gathering		3,386			56	⁽ⁿ⁾		(2,818	)^(t)		—			624			—			624
Depreciation, depletion and amortization		21,428			716	^(o)		(4,124	)^(u)		—			18,020			15,419	^(z)		33,439
Accretion of asset retirement obligation		358			61	^(p)		(159	)^(v)		—			260			63	^(aa)		323
General and administrative expense		10,935			—			—			—			10,935			—			10,935
Litigation settlement expense		1,000			—			—			—			1,000			—			1,000

Total expenses		46,415			2,315			(9,420	)		—			39,310			22,834			62,144

Income from operations		14,615			2,092			746			—			17,453			12,103			29,556
Other income (expense):
Gain on acquisition of assets at fair value		43,712			(43,712	)^(q)		—			—			—			—			—
Interest expense		(7,593	)		(4,446	)^(r)		—			—			(12,039	)		(8,180	)^(bb)		(20,219	)
Investment income and other		(5	)		—			—			—			(5	)		—			(5	)
Foreign transaction loss		(11	)		—			—			—			(11	)		—			(11	)

Income before provision for income taxes		50,718			(46,066	)		746			—			5,398			3,923			9,321
Provision for income taxes		—			—			—			—			—			—			—

Net income		50,718			(46,066	)		746			—			5,398			3,923			9,321
Dividend on preferred stock attributable to non-controlling interest		(6,398	)		—			—			(4,313	)^(cc)		(10,711	)		—			(10,711	)

Net income attributable to common stockholder	$	44,320		$	(46,066	)	$	746			(4,313	)		(5,313	)	$	3,923		$	(1,390	)

⁽¹⁾

The pro forma adjustments to the statement of operations for the Chesapeake Acquisition and Related Dispositions include five months and one week of revenues and direct operating expenses related to the Chesapeake Acquisition net of the interest acquired by the joint venture partner in the AMI Election. Three months and three weeks of Chesapeake Acquisition revenues have been recorded in our historical results for the nine months ended September 30, 2013.

See accompanying notes to unaudited pro forma combined financial statements.

Gastar Exploration USA, Inc.

Unaudited Pro Forma Combined Statement Of Operations

for the Year Ended December 31, 2012


	Gastar USA Historical			Pro Forma Adjustments									Pro Forma Prior to WEHLU Acquisition			Pro Forma Adjustments			Pro Forma
	Gastar USA Historical			Chesapeake Transactions and Related Dispositions			East Texas Disposition			Preferred Stock Offering			Pro Forma Prior to WEHLU Acquisition			WEHLU Acquisition			Pro Forma
	(in thousands)
Revenues:
Natural gas	$	33,829		$	4,179	^(m)	$	(10,101	)^(s)		—		$	27,907		$	2,317	^(x)	$	30,224
Condensate and oil		12,377			7,080	^(m)		(1,453	)^(s)		—			18,004			29,029	^(x)		47,033
NGLs		9,300			681	^(m)		—			—			9,981			4,534	^(x)		14,515

Total natural gas, oil and NGLs revenues		55,506			11,940			(11,554	)		—			55,892			35,880			91,772
Unrealized hedge loss		(5,566	)		—			—			—			(5,566	)		—			(5,566	)

Total revenues		49,940			11,940			(11,554	)		—			50,326			35,880			86,206
Expenses:
Production taxes		2,269			555	⁽ⁿ⁾		(85	)^(t)		—			2,739			1,609	^(y)		4,348
Lease operating expenses		6,174			3,175	⁽ⁿ⁾		(3,624	)^(t)		—			5,725			6,043	^(y)		11,768
Transportation, treating and gathering		4,965			121	⁽ⁿ⁾		(3,746	)^(t)		—			1,340			—			1,340
Depreciation, depletion and amortization		25,424			3,389	^(o)		(9,360	)^(u)		—			19,453			17,836	^(z)		37,289
Impairment of natural gas and oil properties		150,787			—			—			—			150,787			—			150,787
Accretion of asset retirement obligation		388			160	^(p)		(215	)^(v)		—			333			79	^(aa)		412
General and administrative expense		10,732			—			—			—			10,732			—			10,732
Litigation settlement expense		1,250			—			—			—			1,250			—			1,250

Total expenses		201,989			7,400			(17,030	)		—			192,359			25,567			217,926

Loss from operations		(152,049	)		4,540			5,476			—			(142,033	)		10,313			(131,720	)
Other income (expense):
Interest expense		(271	)		(12,516	)^(r)		(1,396	)^(w)		—			(14,183	)		(11,527	)^(bb)		(25,710	)
Investment income and other		(4	)		—			—			—			(4	)		—			(4	)
Foreign transaction gain		2			—			—			—			2			—			2

Loss before provision for income taxes		(152,322	)		(7,976	)		4,080			—			(156,218	)		(1,214	)		(157,432	)
Provision for income taxes		—			—			—			—			—			—			—

Net loss		(152,322	)		(7,976	)		4,080			—			(156,218	)		(1,214	)		(157,432	)
Dividend on preferred stock attributable to non-controlling interest		(7,077	)		—			—			(5,751	)^(cc)		(12,828	)		—			(12,828	)

Net loss attributable to common stockholder	$	(159,399	)	$	(7,976	)	$	4,080		$	(5,751	)	$	(169,046	)	$	(1,214	)	$	(170,260	)

See accompanying notes to unaudited pro forma combined financial statements.

1. Pro Forma Adjustments

(a)	To record the net cash proceeds received for the East Texas Disposition. The East Texas Disposition cash proceeds are net of approximately $3.4 million of customary closing adjustments and $4.7 million of deposit received prior to September 30, 2013.

(b)	To record the reduction in property, plant and equipment for the net sales proceeds for the East Texas Disposition and to reduce the property, plant and equipment balance for the related asset retirement obligation costs at September 30, 2013 for the East Texas Disposition.

(c)	To record the application of the $4.7 million deposit previously received for the East Texas Disposition prior to September 30, 2013.

(d)	To record the reduction in the asset retirement obligation liability at September 30, 2013 for the East Texas Divestiture.

(e)	To record the cash proceeds received from the issuance of Series B Preferred Stock, net of $3.4 million in fees and estimated expenses.

(f)	To record the issuance of $53.5 million of 10.75% perpetual preferred stock net of issuance costs of $3.4 million issued to fund a portion of the probable WEHLU Acquisition.

(g)	To record the net decrease in cash after the receipt, net of fees and expenses, from the assumed issuance of $125.0 million of senior secured notes and the payment of $187.5 million for the probable WEHLU Acquisition.

(h)	To record additional plant, property and equipment acquired and additional asset retirement obligation (full cost method) as of September 30, 2013 for the probable WEHLU Acquisition.

(i)	To record additional deferred charges related to the assumed issuance of the $125.0 million senior secured notes at an interest rate of 8.625%.

(j)	To record the application of the deposit previously paid prior to September 30, 2013 to the purchase price of the WEHLU Acquisition.

(k)	To record the assumed issuance of $125.0 million senior secured notes at an interest rate of 8.625%, net of $3.4 million of initial purchaser discount.

(l)	To record additional asset retirement obligation liability for the WEHLU Acquisition properties at September 30, 2013.

(m)	To record natural gas, condensate and oil and NGLs sales revenues for the Chesapeake Acquisition and Related Dispositions for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(n)	To record direct operating expenses for the Chesapeake Acquisition and Related Dispositions for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(o)	To record additional depreciation, depletion and amortization (“DD&A”) expense for the Hunton Transactions for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(p)	To record additional accretion expense for the Chesapeake Acquisition and Related Dispositions for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(q)	To exclude the impact of the non-recurring gain on acquisition of assets at fair value resulting from the Chesapeake Acquisition.

(r)

To record additional interest expense related to the May 10, 2013 issuance of $200.0 million of senior secured notes at an interest rate of 8.625% issued in part to fund the Chesapeake Acquisition and Chesapeake Share Repurchase, net of (i) interest expensed on any borrowings under the prior revolving credit facility and (ii) additional interest capitalized on unproved properties.

(s)	To record the reduction in natural gas, condensate and oil sales revenues for the East Texas Divestiture for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(t)	To record the reduction in direct operating expenses for the East Texas Disposition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(u)	To record the reduction in DD&A expense for the East Texas Disposition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(v)	To record the reduction in accretion expense on the asset retirement obligation for the East Texas Disposition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(w)	To record interest expense, rather than capitalized interest, related to the East Texas unproven property for the year ended December 31, 2012 had the East Texas Disposition occurred on January 1, 2012.

(x)	To record natural gas, condensate and oil and NGLs sales revenues for the WEHLU Acquisition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(y)	To record direct operating expenses for the WEHLU Acquisition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(z)	To record additional DD&A expense for the WEHLU Acquisition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(aa)	To record additional accretion expense on the asset retirement obligation for the WEHLU Acquisition for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

(bb)

To record additional interest expense, net of capitalized interest, for the assumed issuance of $125.0 million of senior secured notes at an interest rate of 8.625% to fund a portion of the WEHLU Acquisition for the nine months ended September 30, 2013 and for the year ended December 31, 2012. For every $10.0 million in principal amount of senior notes issued, pro forma interest expense will be increased and pro forma net loss or income attributable to common stockholder will be increased or decreased, respectively, by $863,000 for the twelve months ended December 31, 2012 and by $647,000 for the nine months ended September 30, 2013. A 0.125% per annum increase or decrease in the assumed interest rate on such $10.0 million principal amount of additional senior notes issued would result in an increase or decrease of pro forma interest expense and an increase or decrease, respectively, in net loss or income attributable to common stockholder by $12,500 for the twelve months ended December 31, 2012 and by $9,400 for the nine months ended September 30, 2013. In the event we utilize borrowings under our senior revolving credit facility to finance a portion of the WEHLU Acquisition price at an assumed currently applicable maximum 3.25% per annum rate, for every $10.0 million in such borrowings, pro

forma interest expense will be increased and pro forma net loss or income attributable to common stockholder will be increased or decreased, respectively, by $325,000 for the twelve months ended December 31, 2012 and by $244,000 for the nine months ended September 30, 2013. A 0.125% per annum increase or decrease in the assumed interest rate on such $10.0 million borrowings under the senior revolving credit facility would result in an increase or decrease of pro forma interest expense and an increase or decrease, respectively, in net loss or income attributable to common stockholder by $12,500 for the twelve months ended December 31, 2012 and by $9,400 for the nine months ended September 30, 2013. The actual source of funding may differ and include, in addition to net proceeds from the perpetual preferred stock issuance, net proceeds from the assumed issuance of senior secured notes and cash on hand, borrowings under the senior revolving credit facility.

(cc)

To record additional dividend expense on the issuance of $53.5 million of 10.75% perpetual preferred stock net of issuance costs of $3.4 million issued to fund a portion of the probable WEHLU Acquisition purchase price for the nine months ended September 30, 2013 and for the year ended December 31, 2012.