With Gastar Down 25% Last Week, Canaccord Says Buy The Dip

Canaccord Genuity recommends investors buy the recent dip in Gastar Exploration Inc GST as the company is set for upside later this year and beyond.

Shares of Gastar, the only pure Mid-Continent player in Oklahoma, fell 24 percent in the last four sessions. The company has more than 80K net surface acres with over 1,000 net STACK locations.

The recent $425 million in new financing has pushed 2017/2018 debt maturities until 2022, while the new Development Agreement (DA) gives the company more flexibility to prove out its core STACK acreage.

“We believe the stock is oversold and are buyers,” analyst Stephen Berman wrote in a note.

Meanwhile, the DA positions Gastar to minimize leasehold renewal costs with minimal drilling capital on the company's part, while maintaining the majority of the upside.

In addition, the company expects it will have de-risked a significant portion of its STACK acreage related to the Meramec and Osage by year end.

The analyst said Gastar could  essentially more than double the number of gross and net Osage well locations in its current inventory should the Great Divide well and the upcoming testing of the upper Osage bench prove to be successful.

The company expects first quarter and FY2017 production at 5.2-5.4 MBoe/d and 5.5-6.1 MBoe/ d, which the analyst believes is conservative.

“We are now modeling 5.5 Mboe/d vs. 5.9 MBoe/ d previously for Q1 and 6.2 MBoe/d vs 6.7 MBoe/d previously for FY17,” Berman added.

As of March 7, Gastar had cash of $47.8 million. The company expects to receive an additional $12.7 million in South STACK acreage sale proceeds and another $12 million in the first half of 2017 in net joint interest billing cost.

Berman reiterated his Buy rating on Gastar, with price target of $2.50.

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