Gastar Exploration Inc (NYSEMKT:GST) is a small cap play in the oil patch that has started to push higher in recent weeks along with the sector as commodities resume some clear strength. The real story here is a macro one. There are a ton of tailwinds, and we will take a look at each of them in turn.
The key issues are as follows: 1. The election of Donald Trump with a GOP-controlled congress has put the idea of a major infrastructure bill in the US on the table for next year, which will present a major demand-side pull for basic commodities like oil and gas; 2. OPEC recently agreed to a major cut when most pundits did not expect it to get that done; 3. That OPEC deal came with a cooperative arrangement among non-OPEC countries (including Russia) that creates a new dynamic and instills a new policy premium into the price of oil. We will look at these issues more below. But first, let’s take a closer look at this company qua itself.
Gastar Exploration Inc (NYSEMKT:GST) trumpets itself as an independent energy company that engages in the exploration, development, and production of oil, condensate, natural gas, and natural gas liquids in the United States.
Its principal activities include the identification, acquisition, development, and exploration of oil and natural gas properties on unconventional reserves, such as shale resource plays.
The company is also developing the primarily oil-bearing reservoirs of the Hunton Limestone horizontal oil play in Oklahoma; and liquids-rich natural gas in the Marcellus Shale in West Virginia. As of December 31, 2015, its principal assets included approximately 36,900 net acres in the Appalachian Basin in West Virginia and southwestern Pennsylvania, as well as approximately 110,700 net acres in the Mid-Continent area of the U.S. in the state of Oklahoma.
The company was formerly known as Gastar Exploration Ltd. and changed its name to Gastar Exploration Inc. in January 2014. Gastar Exploration Inc. is based in Houston, Texas.
According to company materials, “Gastar Exploration Inc. is a pure play Mid-Continent independent energy company engaged in the exploration, development and production of oil, condensate, natural gas and natural gas liquids. Gastar’s principal business activities include the identification, acquisition, and subsequent exploration and development of oil and natural gas properties with an emphasis on unconventional reserves, such as shale resource plays. Gastar holds a concentrated acreage position in what is believed to be the core of the STACK Play, an area of central Oklahoma which is home to multiple oil and natural gas-rich reservoirs including the Meramec, Oswego, Osage, Woodford and Hunton formations.”
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As discussed above, the election of Trump as the next US President has created a legislative alignment with Congress that opens up doors for fiscal stimulus to push the US economy and fund an infrastructure upgrade process. Everyone agrees the US needs it. That spells further demand for energy for the production and transportation of everything needed for building bridges, highways, hospitals, airports, and the like.
In addition, the deal struck in Vienna on November 30 was followed by another one ten days later that really got everyone on the same page.
The two ideas, taken together, represent a good push for both supply and demand to move in a direction that supports oil and gas prices going forward, as well as equities in the space, including GST. The stock has really responded well in the meantime.
The chart shows 19% added to share values of the listing over the past month of action. Market participants may want to pay attention to this stock. GST has evidenced sudden upward volatility on many prior occasions. Moreover, the listing has registered increased average transaction volume recently, with the past month seeing exceeding 140% beyond its prior sustained average level.
Earning a current market cap value of $208.1M, GST has a significant war chest ($46.74M) of cash on the books, which is balanced by an appreciable load ($418.62M) of total accumulated debt. GST is making real money, with trailing 12-month revenues coming in at 59.68M. However, that top line number has been suffering of late on a year over year basis. In any case, the past reflects a commodity bear market, and may not be remotely indicative of what’s to come for a company like this. This is an exciting story, and we look forward to a follow-up chapter as events transpire. For continuing coverage on shares of $GST stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!
