PostRock Reports Third Quarter Results

PostRock Reports Third Quarter Results

OKLAHOMA CITY, Nov. 7, 2012 (GLOBE NEWSWIRE) -- PostRock Energy Corporation
(Nasdaq:PSTR) today announced its third quarter 2012 results. As previously
announced, PostRock completed the sale of its interstate pipeline business on
September 28, 2012. Accordingly, the interstate business has now been
classified as a discontinued operation.

Natural gas revenue fell 42.7% from the prior-year period to $10.8 million.
The decline was caused by a 34.4% drop in realized gas prices to $2.69 per Mcf
and a 12.7% decline in gas production to 43.8 MMcf per day. The decline in gas
production is the result of suspended gas development during the low gas price
environment in 2012. All development efforts have been redirected to oil
projects. Oil revenue increased 34.9% from the prior-year period to $2.2
million. The increase was caused by a 5.1% increase in realized oil prices to
$89.15 per Bbl and a 28.4% increase in production to 272 Bbls per day. During
September 2012, net production averaged 307 Bbls per day. Gathering revenue
fell by 53.3% to $646,000. The majority of the decline resulted from the
royalty settlement, however, $144,000 resulted from the Company's production
decline and $111,000 resulted from third party volumes and pricing.

Realized hedging gains decreased 63.3% from the prior-year period to $2.7
million. The decrease was primarily the result of the monetization and
re-pricing of our July and August NYMEX gas swap contracts in April 2012.

Production costs, consisting of lease operating expenses, gathering costs and
production taxes, totaled $9.9 million, a 16.3% decrease from the prior-year
period. Primarily as a result of field optimization projects, labor costs
decreased $727,000, vehicle and equipment costs decreased $371,000, repair and
maintenance costs decreased $512,000, gathering costs fell $153,000 and
various other expenses decreased $106,000. In addition, we saw a $732,000
reduction in production taxes driven by the decline in pricing and production.
These reductions were partly offset by a decline of $672,000 in capitalized
costs. In total, production costs were $2.38 an Mcfe, a 5.2% decrease from the
prior-year quarter.

General and administrative expenses totaled $3.5 million, an 11.6% decrease
from the prior-year period. During the 2011 period, a $757,000 charge was
recorded for the closure of our Houston office. During the 2012 period, a
$435,000 severance charge was recorded for the restructuring of our Oklahoma
City office. Excluding these charges, general and administrative expenses were
$135,000, or 4.2%, lower than the prior-year period. The decrease was
primarily due to reduced wages and bonuses of $373,000, lower legal,
accounting and audit fees of approximately $278,000 and a reduction in other
categories totaling $59,000. Partially offsetting these reductions was higher
stock compensation expense of $575,000 as a result of the forfeiture of
unvested grants in the prior-year period.

Each quarter, PostRock is required to assess the recoverability of the
carrying value of its oil and gas properties against their present value
utilizing a first-of-the-month twelve-month average price for oil and natural
gas. Driven by a 30.7% decrease in third quarter prices compared to the
prior-year period, the twelve-month average natural gas price decreased
significantly. This resulted in the carrying value of PostRock's oil and
natural gas properties exceeding the present value under the prescribed
methodology. As a result, an impairment of oil and gas properties of $4.3
million was recognized in the current period.

Natural gas prices during the fourth quarter of 2011 averaged $3.63 per MMBtu.
To date, prices in the fourth quarter of 2012 have averaged $3.30 per MMBtu.
Absent an increase in natural gas prices, another impairment may be recognized
at year-end.

Due to further declines in the unit price of Constellation Energy Partners in
the quarter, the Company recorded a mark-to-market loss of $2.1 million.


In April, PostRock re-priced its June, July and August NYMEX gas swap
contracts. In May, the June contract was rolled into 2016 hedges. Since these
transactions, the new contracts have experienced $1.8 million in losses. Of
this amount, $514,000 was paid in July, $617,000 was paid in August and
$683,000 represents the current, unrealized loss on the 2016 hedges. On
November 5^th, PostRock monetized its NYMEX gas swap contracts held between
July 2013 and December 2013 for $14.8 million. Proceeds were used to reduce

PostRock still holds hedges covering 30 MMcf a day of gas for December 2012 at
an average price of $6.82 per Mcf and 25 MMcf a day during the first six
months of 2013 at an average price of $6.71 per Mcf. PostRock also holds
Southern Star Basis Swaps covering 25 MMcf a day for the last six months of
2013 at an average price of ($0.75) per Mcf. The following table summarizes
the Company's position at September 30, 2012 after giving effect to the
November 5^th monetization.

                             Oct. - Dec.                      
                             2012        2013      2014   2015   2016
Natural Gas Hedges                                            
Southern Star Gas Swaps                                       
Volume (MMBtu)                500,001     --        --     --     --
Weighted Average Price        $6.80       --        --     --     --
NYMEX Gas Swaps                                               
Volume (MMBtu)                2,262,295   4,463,015 --     --     1,047,000
Weighted Average Price        $7.31       $7.37     --     --     $4.00
Southern Star Basis Swaps                                     
Volume (MMBtu)                2,262,295   9,000,003 --     --     --
Weighted Average Price        ($0.71)     ($0.71)   --     --     --
Oil Hedges                                                    
NYMEX Oil Swaps                                               
Volume (Bbls)                 16,671      65,892    61,680 58,164 53,892
Weighted Average Price        $93.86      $101.70   $97.00 $93.40 $91.10


At September 30, 2012, including $1.4 million of letters of credit, PostRock
had $104.3 million utilized on its revolving credit facility, a decrease of
$64.5 million from the second quarter of 2012. The reduction was funded with
proceeds from the KPC sale and a $12 million investment by White Deer Energy
in August. Since the end of the quarter, debt has been reduced an additional
$16.5 million resulting in total utilization of $87.8 million at November 7,
2012. The reduction was primarily due to monetizing certain 2013 hedges.

In connection with the borrowing base redetermination based on June 30, 2012
reserves, PostRock expects that on November 9, 2012 the borrowing base will be
reduced to $98 million. The Company is no longer subject to monthly
amortization payments or additional interest on amounts outstanding. The
Company recently selected a bank to lead a new borrowing base facility. If
successful, this will permit the full refinancing of PostRock's existing bank
facility. Given current gas prices, the Company does not anticipate having
meaningful liquidity for some time unless it completes the refinancing.
Working capital needs and capital expenditures are expected to be funded with
cash flow from operations.

At September 30, 2012, PostRock elected to pay-in-kind the quarterly dividend
to White Deer which increased the liquidation value of Series A Preferred
Stock outstanding by $2.3 million to $82.3 million. White Deer also received
1.4 million additional warrants with a weighted average strike price of $1.72
a share. In total, White Deer holds 28.1 million warrants exercisable at an
average price of $2.93 a share and 5.3 million common shares.

                                             December 31, September 30,
                                              2011         2012
                                             (in thousands)
Cash and equivalents                         $349       $162
Long-term debt (including current maturities)             
Borrowing base facility                       $190,000   $102,855
Secured pipeline loan                         3,000       --
Total                                         $193,000   $102,855
Redeemable preferred stock                    $56,736    $66,613
Stockholders' equity (deficit)                7,810       (17,247)
Total capitalization                          $257,546   $152,221

Significant Events

On August 1, 2012, White Deer invested a further $12 million in PostRock
equity, comprised of 50% common and 50% preferred stock. White Deer acquired
3,076,923 shares of common stock at a price of $1.95 per share and $6 million
of 12% cumulative redeemable preferred stock and received 3,076,923 warrants
to purchase common stock at a price of $1.95 a share. Proceeds from the
investment were used to reduce debt and provide working capital.
Simultaneously, White Deer extended the period during which PostRock may
pay-in-kind the dividends on all preferred stock held by White Deer by
eighteen months to December 2014.

On September 28, 2012, PostRock KPC Pipeline, LLC was sold to MV Pipelines,
LLC for a price of $53.5 million. After a working capital adjustment, $52.9
million in cash was received. An additional $500,000 is in escrow pending
cleanup of a former KPC site. These funds should be released in February 2013.
After $2.0 million in transaction costs related to retention benefits,
professional fees and clean-up, the Company recorded a loss on the sale of
$5.6 million.

Capital Expenditures

During the third quarter, capital expenditures totaled $3.5 million. This
included $2.3 million spent on oil directed drilling and recompletions,
$330,000 on vehicle and equipment replacement, $592,000 on compressor
optimization, IT and other maintenance projects and $261,000 on KPC.

Year to date capital expenditures totaled $12.7 million. This included $6.4
million spent on oil directed drilling and recompletions, $2.0 million on
vehicle and equipment replacement, $1.2 million to connect two sections of the
gathering system, $2.4 million to complete facility, compressor optimization,
IT and other projects, $638,000 on KPC and $119,000 to extend leases.

Management Comment

Terry W. Carter, PostRock's President and Chief Executive Officer, said, "With
natural gas prices at levels unprofitable for new development, we are focused
on oil projects on our existing leasehold, retiring debt and reducing our cost
structure. During the quarter, we took the next step in our efforts to reduce
costs by restructuring our Oklahoma City office and eliminating approximately
14% of our G&A staff. Combined with the reductions associated with the sale of
KPC, our G&A staff is now 24% lower than it was in June. These changes, along
with a continued focus on eliminating unnecessary spending, are expected to
save approximately $3 million in annual G&A costs going forward. Additionally,
the completion of the sale of KPC in September coupled with the $12 million
investment by White Deer in August enabled us to further reduce debt by $64.5
million during the quarter. Our recent hedge transaction helped reduce debt
another $16.5 million subsequent to quarter end. All of our efforts to reduce
costs and debt while developing oil on our existing leasehold have
strengthened our balance sheet and improved our outlook. During the fourth
quarter our focus will be on refinancing our current credit facility and
continuing to develop our oil projects."

"Since February 2012, we have performed 75 Cherokee Basin recompletions
targeting behind-pipe oil potential. Of these, 50 have been producing long
enough to determine their results. Peak production rates from successful
recompletions have averaged 7 gross Bbls of oil per day. Recompletion projects
currently have a 50% success rate at finding new oil production. The cash cost
of a successful recompletion is approximately $67,000, including a new tank
battery, and the cash cost of an unsuccessful recompletion is $22,000.
Assuming current prices, capital costs and success rate, early results
indicate our recompletion program should yield a rate of return greater than
45%. For the remainder of 2012, we plan to complete 27 oil recompletions and
16 new oil wells at a total cost of approximately $3 million."

Webcast and Conference Call

PostRock will host its quarterly webcast and conference call tomorrow,
Thursday, November 8, 2012, at 10:00 a.m. Central Time. The live webcast will
be accessible on the 'Investors' page at, where it will also be
available for replay. The conference call number for participation is (866)

PostRock Energy Corporation is engaged in the acquisition, exploration,
development, production and transportation of oil and natural gas, primarily
in the Cherokee Basin of Kansas and Oklahoma. The Company owns and operates
over 3,000 wells and nearly 2,200 miles of gas gathering lines in the Basin.
It also owns and operates minor oil producing properties in Oklahoma and oil
and gas producing properties in the Appalachian Basin.

The PostRock Energy Corp. logo is available at

Forward-Looking Statements

Opinions, forecasts, projections or statements, other than statements of
historical fact, are forward-looking statements that involve risks and
uncertainties. Forward-looking statements in this announcement are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Actual results may
differ materially due to a variety of factors, some of which may not be
foreseen by PostRock. These risks and other risks are detailed in the
Company's filings with the Securities and Exchange Commission, including risk
factors listed in the Company's Annual Report on Form 10-K and other filings
with the SEC. The Company's filings with the SEC may be found at
or By making these forward-looking statements, the Company
undertakes no obligation to update these statements for revisions or changes
after the date of this release.

Reconciliation of Non-GAAP Financial Measures

The following table represents a reconciliation of net income (loss) to EBITDA
and adjusted EBITDA, as defined, for the periods presented.

                                             Three Months Ended September 30,
                                             2011            2012
                                             (in thousands)
Net income (loss) from continuing operations  $6,938        $(19,930)
Adjusted for:                                                
Income taxes                                  --             --
Interest expense, net                        2,485          2,615
Depreciation, depletion, and amortization    5,874          7,321
EBITDA                                        $15,297       $(9,994)
Other income, net                            (23)           (62)
Loss on equity investment                     859            2,111
Unrealized (gain) loss from derivative        (4,689)        6,523
Impairment of oil and gas properties          --             4,309
Gain on forgiveness of debt                   --             --
(Gain) loss on disposal of assets             (32)           64
Litigation reserve                            1,981          --
Office Closure Costs                          757            --
Stock-based compensation                      (157)          463
Adjusted EBITDA                               $13,993       $3,414

Although adjusted EBITDA is not a measure of performance calculated in
accordance with generally accepted accounting principles, or GAAP, management
considers it an important measure of performance. Adjusted EBITDA is not a
substitute for the GAAP measures of earnings or cash flow and is not
necessarily a measure of the Company's ability to fund its cash needs. In
addition, it should be noted that companies calculate adjusted EBITDA
differently, and therefore adjusted EBITDA as presented herein may not be
comparable to adjusted EBITDA reported by other companies. Adjusted EBITDA has
material limitations as a performance measure because it excludes, among other
things, (a) interest expense, which is a necessary element of business to the
extent that an entity incurs debt, (b) depreciation, depletion and
amortization, which are necessary elements of any business that uses capital
assets, (c) impairments of oil and gas properties, which may at times be a
material element of an independent oil company's business, and (d) income
taxes, which may become a material element of the Company's operations in the
future. Because of its limitations, adjusted EBITDA should not be considered a
measure of discretionary cash available to us to invest in the growth of
PostRock's business.

(in thousands, except per share data)
                                             Three Months Ended September 30,
                                             2011            2012
Natural gas sales                             $18,889       $10,819
Crude oil sales                               1,654          2,232
Gathering                                    1,383          646
Total                                        21,926         13,697
Costs and expenses                                           
Production expense                           11,845         9,917
General and administrative                    3,952          3,495
Litigation reserve                            1,981          --
Depreciation, depletion and amortization     5,874          7,321
Impairment of oil and gas properties          --             4,309
Loss (gain) on disposal of assets             (32)           64
Total                                        23,620         25,106
Operating loss                                (1,694)        (11,409)
Other income (expense)                                       
Realized gain from derivative financial       7,264          2,666
Unrealized gain (loss) from derivative        4,689          (6,523)
financial instruments
Loss on equity investment                    (859)          (2,111)
Other income, net                             23             62
Interest expense, net                        (2,485)        (2,615)
Total                                        8,632          (8,521)
Income (loss) from continuing operations      6,938          (19,930)
before income taxes
Income taxes                                  --             --
Net income (loss) from continuing operations  6,938          (19,930)
Discontinued operations                       69             (5,244)
Net income (loss)                             7,007          (25,174)
Preferred stock dividends                     (1,973)        (2,341)
Accretion of redeemable preferred stock       (406)          (568)
Net income (loss) available to common stock   $4,628        $(28,083)
Income (loss) per common share                               
Basic income (loss) per share - continuing    $0.51         $(1.58)
Basic income (loss) per share - discontinued  --            (0.36)
Basic income (loss) per share                $0.51         $(1.94)
Diluted income (loss) per share - continuing  $0.28         $(1.58)
Diluted income (loss) per share - discotinued 0.01           (0.36)
Diluted income (loss) per share              $0.29         $(1.94)
Weighted average common shares outstanding                   
Basic                                        9,009          14,477
Diluted                                      16,009         14,477

(in thousands)
                                              December 31, September 30,
                                               2011         2012
Current assets                                             
Cash and equivalents                          $349       $162
Accounts receivable - trade, net              7,785       5,474
Other receivables                             1,164       212
Inventory                                     1,681       1,374
Other                                          7,455       3,713
Derivative financial instruments              42,803      34,484
Assets of discontinued operations              1,585       --
Total                                         62,822      45,419
Oil and gas properties, full cost, net        124,068     110,774
Other property and equipment, net             14,465      14,900
Equity investment                              12,994      8,416
Other, net                                     2,812       512
Derivative financial instruments              29,516      8,585
Assets of discontinued operations              60,034      --
Total assets                                  $306,711   $188,606
Current liabilities                                        
Accounts payable                              $5,723     $2,717
Revenue payable                               4,972       3,915
Accrued expenses and other                     8,327       7,883
Litigation reserve                             3,081       4,484
Current portion of long-term debt              3,000       102,855
Derivative financial instruments              5,223       4,440
Liabilities of discontinued operations         936         --
Total                                         31,262      126,294
Derivative financial instruments              4,611       1,980
Long-term debt                                 190,000     --
Asset retirement obligations                   10,087      10,665
Other                                          4,559       301
Liabilities of discontinued operations         1,646       --
Total liabilities                              242,165     139,240
Commitments and contingencies                              
Series A cumulative redeemable preferred stock 56,736      66,613
Stockholders' equity                                       
Preferred stock                                2           2
Common stock                                   99          156
Additional paid-in capital                    378,093     389,314
Accumulated deficit                           (370,384)   (406,719)
Total equity (deficit)                         7,810       (17,247)
Total liabilities and equity (deficit)         $306,711   $188,606

(in thousands)
                                              Nine Months Ended Sepember 30,
                                              2011           2012
Cash flows from operating activities                       
Net income (loss)                            $10,677      $(36,335)
Adjustments to reconcile net income (loss) to               
net cash fromoperations
Depreciation, depletion and amortization     20,482        22,960
Stock-based compensation                     1,184         1,554
Impairment of oil and gas properties         --            4,309
Amortization of deferred loan costs          1,278         1,208
Change in fair value of derivative financial  6,471         25,836
Litigation reserve                           6,031         --
Loss (gain) on disposal of assets            (12,385)      5,811
Gain on forgiveness of debt                  (1,647)       (255)
Loss from equity investment                  859           4,578
Other non-cash changes                       562           389
Change in assets and liabilities                           
Receivables                                  1,494         3,253
Payables                                     (2,806)       (8,803)
Other                                        (2,725)       4,927
Net cash flows from operating activities     29,475        29,432
Cash flows from investing activities                       
Restricted cash                              28            --
Proceeds from sale of equity securities      1,634         --
Equity investment                            (6,864)       --
Proceeds from sale of assets                 10,706        53,201
Equipment, development, leasehold and         (23,398)      (12,276)
Net cash flows from (used in) investing       (17,894)      40,925
Cash flows from financing activities                       
Proceeds from issuance of preferred stock and --            6,000
Proceeds from debt                           3,000         --
Repayments of debt                           (15,319)      (90,145)
Proceeds from issuance of common stock       --            13,682
Proceeds from stock option exercise          66            --
Equity issuance costs                        --            (81)
Net cash flows used in financing activities  (12,253)      (70,544)
Net decrease in cash                         (672)         (187)
Cash and equivalents - beginning of period   730           349
Cash and equivalents - end of period         $58          $162

CONTACT: North Whipple
         Director, Finance & Investor Relations
         (405) 702-7423

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