Gastar Begins 10 Well CBM Program in Australia

Gippsland Basin
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Gastar Exploration says that a ten well coal bed methane drilling program has been commenced on its 1.0 million gross acre Exploration License 4416 (EL 4416) in the Gippsland Basin located in Victoria, Australia. Gastar has committed and funded approximately $6.5 million for its 75% interest in the 10 CBM wells, which are being operated by CBM Resources Pty, Ltd., a subsidiary of Geostar Corporation. Gastar owns its interest in EL 4416 jointly with Geostar. The 10 well program will include the establishment of two "5-spot" pilots, one incorporating the two previous wells, and two wells designed to test for the presence and production potential of the coals at additional locations within the license area. The two previously drilled wells are also scheduled to have larger capacity pumps installed to facilitate de-watering operations.

In a related matter, Gastar has sent a letter to Geostar Corporation requesting arbitration to settle certain disputed issues and interpretations under a Participation and Operating Agreement (POA) with Geostar and its subsidiaries concerning Geostar's failure to deliver certain documents, requests for cash calls that far exceed the funds actually required for operations within a reasonable time frame and requesting cash calls while simultaneously asserting that certain provisions of the POA, including overhead reimbursement rates, need to be renegotiated on terms that Gastar believes are not reasonable and are not within industry standards.

Commenting on the developments, Gastar's Chairman, Chief Executive Officer and President, J. Russell Porter, said, "We are pleased to begin a more active exploration and testing program on our Gippsland Basin holdings. Gastar believes that EL 4416 contains significant CBM resource potential. This property is strategically located near existing infrastructure and the large gas markets in eastern Australia. Our expectations are that this ten well program will help us evaluate the CBM potential on EL 4416 and formulate additional plans for assessing and quantifying optimal drilling and completion techniques, the potential for commercial rates from individual wells and the size of the potential resource. While we have continued confidence in Geostar's ability to operate the proposed wells, we feel the need to protect Gastar's interests and establish clarity in our relationship with Geostar through this arbitration request. We hope that these issues will be settled amicably between us before an arbitration decision needs to be rendered."


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