Gastar Exploration has entered into definitive agreements with Santos QNT Pty Ltd and Santos International Holdings Pty Ltd, affiliates of Santos Ltd for the sale of all of Gastar's interest in Petroleum Exploration Licenses 238, 433 and 434 in New South Wales, Australia, along with the sale of the shares of Gastar Power Pty Ltd, the entity holding Gastar's 35% interest in the Wilga Park Power Station. Gross pre-tax proceeds from the transaction are expected to be approximately US $240 million (AU $300 million). Upon final closing, Gastar's net proceeds, after payment of Australian income taxes, is expected to be approximately US $175 million (AU $219 million).

The Santos transaction is expected to close on July 10, 2009, subject to satisfaction of certain ordinary closing conditions, with an initial payment before taxes of US $224 million (AU $280 million) on that date and the balance to be remitted to Gastar upon the receipt of certain governmental approvals. Gastar plans to use the proceeds from this transaction to repay outstanding debt under its secured revolving credit facility, to retire its $25 million secured term loan and to pay in full Gastar's $30 million convertible subordinated debentures upon their maturity in November 2009. Remaining proceeds are expected to be used to finance an offer to repurchase any and all of Gastar's $100 million 12-3/4% senior secured notes in accordance with the terms of the governing indenture. Thus, the transaction is expected to provide sufficient funds to repay substantially all of Gastar's outstanding debt and reduce annual cash interest expense by as much as approximately US $20 million.

J. Russell Porter, Gastar's President and Chief Executive Officer, commenting on the transaction and related actions said, "This is clearly a transformative transaction for Gastar. We pursued multiple avenues in order to address upcoming debt maturities and to fund the future capital expenditures necessary to continue the development of our Australian assets and our North American assets. After examining all alternatives available, we determined that the sale of the Australian assets was the most prudent course and provided the most attractive near term and future benefit to our shareholders.

"Gastar will maintain its current ownership in the East Texas Deep Bossier and Marcellus Shale plays and plans to proceed with the development of those assets while limiting capital expenditures to excess cash flow generated by its producing assets. We will now have the financial resources to be a substantially debt-free entity holding high growth North American assets and will be financially positioned to execute our strategy in both the Deep Bossier and Marcellus Shale plays."

Tags: Gastar Exploration Ltd.