Trans Closed a New $200 Million Credit Facility

Source: www.gulfoilandgas.com 5/22/2014, Location: North America

Trans Energy, Inc., a pure play Marcellus Shale exploration and production company, announced that its subsidiary, American Shale Development, Inc. ("ASD"), closed on a new credit facility with Morgan Stanley Capital Group Inc. ("Morgan Stanley") in the amount of $200 million. The facility closed and an initial amount of $102.5 million was funded on May 21, 2014.

The credit facility is in the amount of $200 million, of which $102.5 million was funded at closing to refinance ASD's existing debt and to pay certain fees and expenses in connection with the financing. An additional $47.5 million has been committed and is available to fund growth expenditures during the next two years, based on a formula that makes further availability contingent upon the value of ASD's producing properties as compared to its net debt. An additional $50 million may be made available at Morgan Stanley's discretion.

The facility carries an initial interest rate of 10%, which can be reduced upon achieving certain collateral increases, and it matures on December 31, 2018. ASD also granted Morgan Stanley a net profits interest ("NPI") in its oil and gas assets, with an initial NPI of 6.5% granted at the closing and a contingent NPI of 2.5% that will be earned pro rata as ASD draws on the $47.5 million contingent commitment. If prepaid prior to the third anniversary of the closing, certain prepayment penalties may apply. Durham Capital Corporation acted as the Company's financial advisor in connection with the new credit facility.

Use of Proceeds
The Company expects to use the proceeds from this facility and the Republic financing, described below, primarily to refinance debt and to fund ASD's Marcellus Shale growth program. ASD and Republic plan to drill nineteen horizontal wells in 2014, including nine wells in Marion County, four wells in Marshall County and six wells in Wetzel County. These nineteen well locations are expected to enable ASD to prove additional acreage in Marshall, Marion and Wetzel Counties, as well as to hold additional acreage through production. Of the nineteen well locations to be drilled in 2014, fifteen wells are expected to be completed during the year, with completion of the remaining four wells scheduled for early 2015.

Funds are also expected to be used to hydraulically fracture the previously drilled Jones 2H well in Marion County. The Company expects that by the end of 2014 it will own interests in forty completed horizontal Marcellus wells, of which thirty-six are expected to be online by year end 2014.

Steve Lucado, Chairman of Trans Energy, said, "We are delighted to have worked with Durham on the successful funding of our expanded drilling program. They were instrumental in helping to position ASD as an attractive financing opportunity. Together we were able to attract a commitment from a very well respected financial institution that should enable us to greatly expand our drilling program. We are very excited to work with the team at Morgan Stanley as we enhance the value of our Marcellus asset base over the next several years."

Revised Agreement with Republic Energy Ventures
On May 21, 2014, ASD also closed on a transaction through which its joint venture partner, Republic Energy Ventures ("Republic"), agreed to fund $15 million of drilling and completion expenses in exchange for additional interests in ASD's properties, including an overriding royalty interest in six wells recently completed, an overriding royalty interest in ASD's Wetzel County properties, and additional working interest in all of ASD's undeveloped properties. Ownership of the Wetzel County override and the additional working interest will revert back to ASD if it repays the $15 million within six months. If ASD does not repurchase the properties, it will receive 25% of the profits earned by Republic on any eventual sale of those properties.

Republic also agreed to fund all costs related to the acquisition of additional properties until such time as ASD can resume funding a 50% share of such costs. ASD reserved the right to repurchase a 25% interest in any properties acquired during this time in the event that they are drilled or sold.

John Corp, President of Trans Energy said, "We will run two separate rigs in Wetzel and Marion Counties for the remainder of 2014 focused on low-risk, high rate-of return wells to prove up our acreage in the core of the Marcellus Shale in West Virginia. The new credit facility, revised agreement with Republic, and internally generated cash flow enhance our financial flexibility to support our growth and 2014 drilling program in the Marcellus Shale."

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