Shares of Gastar Exploration (NYSEMKT: GST) soared on Friday and were up 12% by 2:30 p.m. EST thanks to a financing agreement with funds managed by Ares Management (NYSE:ARES).
Ares agreed to provide Gastar Exploration with $425 million in new funding, which includes a $250 million secured term loan due in 2022, $125 million in secured convertible notes due in 2022, and it will purchase $50 million in common stock. That capital will enable Gastar to fully repay the $70.4 million outstanding under its revolving credit facility and redeem all of its $325 million in senior secured notes that mature next May. As a result, the company can turn its attention away from strengthening its balance sheet and toward growing its compelling position in the STACK play of Oklahoma.
Ares Management has provided similar financing to another downtrodden oil and gas producer in the past. Last year it provided $350 million in term loan funding to Clayton Williams Energy (NYSE: CWEI), which gave it the cash to pay off its credit facility and finance new wells. Ares also received warrants in that deal allowing it to buy the stock at $22 per share, and it would go on to buy another $150 million in Clayton Williams Energy's stock for $29.70 per share in a follow-on transaction a few months later.
Those transactions would pay off handsomely for both Ares and Clayton Williams after the company agreed to sell itself to Noble Energy (NASDAQ:NBL) for $2.7 billion. Under the terms of that deal, Noble Energy would assume Ares' debt and pay investors about $139 per share in cash and stock. That marked quite the payday for Ares, which, at the time, owned 35% of Clayton William's stock.
Gastar Exploration was able to get the financing it needed to ease its balance sheet burden so it can get back to drilling. Better yet, it got that funding from an investor with an excellent track record of helping beaten-down oil and gas producers. Investors clearly hope that Ares has the Midas touch and can do for Gastar what it did for Clayton Williams.