Gastar, Atinum form Marcellus joint venture

By OGJ editors
HOUSTON, Sept. 22
-- Gastar Exploration Ltd., Houston, and an affiliate of South Korean investment firm Atinum Partners Co. Ltd., Seoul, formed a joint venture to pursue Marcellus shale gas in West Virginia and Pennsylvania.

Gastar will assign an initial 21.43% interest to Atinum Marcellus I LLC in all of its existing Marcellus shale assets in the two states, totaling 34,200 net acres, and certain producing shallow conventional wells.

Transaction value is $70 million, including $30 million to Gastar at closing and a further $40 million in the form of a drilling carry. After the drilling carry is fully funded, Atinum will own a 50% interest in the 34,200 net acres.

Gastar will continue to serve as operator of all Marcellus shale interests in the JV. The transaction is to close within 30-45 days and is contingent on receipt of Korean government agency approvals and other customary closing conditions.

Atinum is to fund its ultimate 50% share of drilling, completion, and infrastructure costs plus 75% of Gastar’s ultimate 50% share of the same costs until the $40 million carry has been satisfied. Gastar and Atinum are pursuing an initial 3-year development program that calls for the partners to drill 1 horizontal Marcellus shale well in 2010, at least 12 horizontal wells in 2011, and 24 horizontal wells in 2012 and in 2013.

An initial area of mutual interests will be established for potential additional acreage acquisitions in Ohio and New York along with the counties in West Virginia and Pennsylvania in which the existing interests are located.

Within the initial AMI, Gastar will act as operator and will offer any future lease acquisitions to Atinum on a 50-50 basis, while Atinum has agreed to pay Gastar on an annual basis an amount equal to 10% of lease bonuses and third party leasing costs up to $20 million and 5% of the costs on activities above $20 million. Until June 30, 2011, Atinum will have the right to participate in any future leasehold acquisitions made by Gastar outside the initial AMI and in West Virginia or Pennsylvania on terms identical to those governing the existing Marcellus JV.

Gastar said the JV will allow it to accelerate development of its assets while maintaining a low level of leverage and a high degree of financial flexibility. Gastar said the transaction also realizes a much higher valuation for the assets than what has been reflected in its share price “and thus made a joint venture the least dilutive method to finance development.”

Gastar said it may use proceeds from the transaction to help fund Marcellus shale development, future East Texas drilling and development, lease or property acquisition opportunities, and to reduce debt.

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