PostRock Reports Second Quarter Results

PostRock Reports Second Quarter Results

OKLAHOMA CITY, Aug. 7, 2013 (GLOBE NEWSWIRE) -- PostRock Energy Corporation
(Nasdaq:PSTR) today announced its results for the quarter ended June 30, 2013.

Highlights

  *Quarterly oil sales averaged over 540 net barrels a day, more than double
    the prior-year period and 50% more than the prior quarter
  *Current oil production at over 600 net barrels a day
  *2% price equivalent production increase over the prior-year quarter based
    on PostRock's realized oil to gas price equivalency ratio of 23:1—the
    first increase in more than four years

Key Financial Results

  *Revenue, excluding hedges, reached $19.6 million, 76% above the prior-year
    period
  *Oil contributed 23% of revenues, compared to 20% in the prior-year period
  *Recurring cash operating expenses were $13.2 million, 3% below the
    prior-year period
  *Interest expense fell to $769,000 for the quarter, 70% below the
    prior-year period

Development and Leasing Activities

Central Oklahoma. During the quarter three oil wells were recompleted and
approximately 7,500 additional acres were acquired, bringing total leasehold
to approximately 10,000 net acres. Initial results on the well recompletions
indicate IRR's of more than 100%. Two vertical wells targeting multiple pays
including the Hunton and Woodford formations, and an initial Hunton horizontal
well were underway at quarter's end. The Company may drill or participate in
one additional vertical well and three to four additional horizontal wells
targeting the Woodford, Mississippian and/or Hunton in Central Oklahoma before
year-end.

Cherokee Basin. During the quarter 58 oil wells were drilled and 19
recompleted. Ongoing oil development will be reduced to 25 to 50 additional
new oil wells in the Basin during the remainder of 2013 as the focus shifts to
developing Central Oklahoma. Oil wells drilled in the Cherokee Basin are also
producing 1.2 Mmcf per day of natural gas. Year-to-date, capital costs are
approximately $4.4 million higher than forecasted, primarily due to additional
infrastructure requirements and unanticipated water disposal costs.

Financial Results

Natural gas revenue rose 70% from the prior-year period to $14.4 million. The
increase was attributable to realized gas prices of $3.97 per Mcf, which were
93% above the prior-year period, partially offset by an 11.6% decline in sales
to 39.9 Mmcf per day. The drop in gas production resulted from the absence of
gas development projects in the last 21 months, as gas prices continue to be
at uneconomic levels. Oil revenue rose 104% from the prior-year period to $4.4
million. The increase in oil revenue was due to a 105% increase in sales
volume which was partially offset by a slight decrease in realized prices. The
Company received an average of $3.87 a Bbl below the NYMEX price during the
quarter. Gathering revenue rose 51% to $716,000 in the period, as reduced
throughput was more than offset by increased pricing during the period.

Production costs, including lease operating expenses, gathering costs and
production taxes, totaled $10.7 million in both periods, as a $367,000
reduction to operating and gathering costs was offset by increased production
taxes resulting from improved pricing.

General and administrative expenses rose to $4.3 million, a 19% increase from
the prior-year period. Current period general and administrative expenses
include non-cash compensation of $1.2 million, a 78% increase over 2012 and a
$528,000 charge stemming from a 2009 workman's compensation insurance audit.
Excluding non-cash compensation and the workman's compensation charge, general
and administrative expenses were $2.5 million, a 13% decrease from 2012.

The Company had a realized loss from derivative financial instruments of $1.3
million, almost entirely due to Southern Star basis swaps, compared to a
realized gain of $18.6 million in the prior-year period. The last of the basis
swaps, which had a mark-to-market loss of $2.3 million at June 30, 2013,
expire in December 2013.

Due to appreciation of Constellation Energy Partners' unit price during the
quarter, a mark-to-market gain of $863,000 was recorded.

Hedges

In June, PostRock entered into additional oil swaps which took effect in July
2013. In combination with existing swaps, an average of 32 Mmcf of gas and 314
Bbls of oil a day are hedged for the remaining six months of 2013 at weighted
average prices of $4.01 per Mcf and $99.76 per Bbl, respectively. It is
expected that the Southern Star basis swaps will have a loss of approximately
$425,000 per month from July through December 2013.

                                Jul. - Dec.                      
NYMEX Gas Swaps                  2013        2014        2015       2016
                                                                
Volume (Mmbtu)                   5,807,358  10,327,572 8,983,560 7,814,028
Weighted Average Price ($/Mmbtu) $4.01     $4.01     $4.01    $4.01
                                                                
NYMEX Oil Swaps                                                  
                                                                
Volume (Bbls)                    57,708     116,076    71,568    65,568
Weighted Average Price ($/Bbl)   $99.76    $95.19    $92.73   $90.33

Debt

At June 30, 2013, $77.5 million was borrowed under the revolving credit
facility, an increase of $11.5 million from March 31, 2013. The increase was
driven by the Company's acceleration of the drilling program in the second
quarter.

At June 30, the quarterly preferred dividend to White Deer was paid in-kind
increasing the liquidation value of its Series A preferred stock by $2.8
million to $96.9 million. As part of the dividend, White Deer also received
1.8 million additional warrants with an average exercise price of $1.54 a
share. White Deer currently holds 9.8 million common shares and 37.7 million
warrants exercisable at prices between $1.42 and $6.39 per share.

On May 8, the Company's borrowing base was increased by $5 million to $95
million based on 2012 year-end reserves. This was the Company's first
borrowing base increase in more than five years.

PostRock Energy Corporation
Capitalization
                                                     
                                         December 31, June 30,
                                         2012         2013
                                         (in thousands)
                                                     
Cash and equivalents                     $525       $268
                                                     
Long-term debt (incl. current maturities) $57,500    $77,500
                                                     
Redeemable preferred stock                $73,152    $78,451
Stockholders' deficit                     (21,008)    (21,196)
Total capitalization                      $109,644   $134,755

Capital Expenditures

During the quarter capital expenditures totaled $18.3 million. This included
$11.9 million on drilling and recompletions, which was primarily related to
oil development and related infrastructure, $2.6 million on maintenance
capital, including trucks and compressor optimization and $3.8 million for
leasehold acquisitions.

Management Comment

Terry W. Carter, PostRock's President and Chief Executive Officer, said,
"Although we've experienced about sixty days in delay to our plan in Central
Oklahoma, we continue to see progress as we develop our oil projects. On the
gas side, we are continuing with the reconfiguration of our compression fleet
that will result in significant fuel savings and other cost reductions. This,
coupled with over 1 Mmcf per day of gas associated with oil development thus
far, will begin to moderate our gas production decline.

The primary focus of our development efforts for the remainder of this year
will be Central Oklahoma, where the oil projects have potential for a more
significant impact on reserves and production. Our first two vertical wells
are currently being completed and we expect to have initial results from our
first Hunton horizontal well by early September. My expectation remains that
we will more than double oil production in 2013 as compared to the previous
year. Our leasehold position in the area is slowly but steadily increasing,
which gives us some running room to prudently develop multiple zones across
the acreage.

We believe that the mix of projects we are working on is beginning to
materially enhance the value of our shareholders' investment."

Webcast and Conference Call

PostRock will host a webcast and conference call tomorrow, August 8, 2013, at
10:00 a.m. Central Time. The webcast will be accessible on the 'Investors'
page at www.pstr.com, where it will also be available for replay. The
conference call number for participation is (866) 516-1003.

PostRock Energy Corporation is engaged in the acquisition, development and
production 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 a small
but growing number of oil producing properties in Central Oklahoma as well as
minor oil and gas producing properties in Appalachia.

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 such expectations will prove correct. Actual results may differ
materially due to a variety of factors, some of which may not be foreseen.
These risks and other risks are detailed in the Company's filings with the
Securities and Exchange Commission, including risk factors listed in the
Annual Report on Form 10-K and other filings. The Company's SEC filings may be
found at www.pstr.com or www.sec.gov. By making these forward-looking
statements, the Company undertakes no obligation to update these statements
for revisions or changes.

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.

PostRock Energy Corporation
Non-GAAP Reconciliations
(in thousands)
                                                                
                                                  Three Months Ended June 30,
                                                  2012           2013
                                                  (in thousands)
                                                                
Net income (loss) from continuing operations       $(19,409)    $6,880
Adjusted for:                                                    
Interest expense, net                             2,524         769
Depreciation, depletion, and amortization         6,940         6,693
EBITDA                                             $(9,945)     $14,342
Other income, net                                 (7)           (7)
Loss (gain) on equity investment                   6,636         (863)
Unrealized loss (gain) from derivative financial   18,777        (10,128)
instruments
Loss (gain) on disposal of assets                  266           (41)
Non-cash compensation                              696           1,236
Adjusted EBITDA                                    $16,168      $4,539

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.

The following table represents a reconciliation of recurring non-cash
operating expenses, as defined, for the periods presented.

PostRock Energy Corporation
Non-GAAP Reconciliations
(in thousands)
                                                        
                                           Three Months Ended June 30,
                                           2012          2013
                                           (in thousands)
                                                        
General and administrative expense (GAAP)   $(3,571)    $(4,259)
Adjusted for:                                            
Non-cash compensation                       696          1,236
Non recurring workman's compensation charge --           528
Adjusted general and administrative expense $(2,875)    $(2,495)
Production Expenses                         (10,699)     (10,702)
Recurring cash operating expenses           $(13,574)   $(13,197)

Recurring cash operating expenses are obtained by subtracting non-recurring
costs and non-cash compensation from production expense and general and
administrative expense, as disclosed above. Non-cash compensation includes
compensation and benefits provided to employees and directors in the form of
Company common stock. Although recurring cash expenses is not a measure of
cost calculated in accordance with GAAP, management considers it an important
measure of the Company's ongoing cost structure and liquidity requirements.

PostRock Energy Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
                                                                
                                                  Three Months Ended June 30,
                                                  2012           2013
Revenue                                                          
Natural gas sales                                  $8,476       $14,434
Crude oil sales                                    2,174         4,444
Gathering                                         474           716
Total                                             11,124        19,594
Costs and expenses                                               
Production expense                                10,699        10,702
General and administrative                         3,571         4,259
Depreciation, depletion and amortization          6,940         6,693
Loss (gain) on disposal of assets                  266           (41)
Total                                             21,476        21,613
                                                                
Operating loss                                     (10,352)      (2,019)
                                                                
Other income (expense)                                           
Realized gains (losses) from derivative financial  18,618        (1,330)
instruments
Unrealized gains (losses) from derivative          (18,777)      10,128
financial instruments
Gain (loss) on equity investment                  (6,636)       863
Gain on forgiveness of debt                        255           --
Other income, net                                  7             7
Interest expense, net                             (2,524)       (769)
Total                                             (9,057)       8,899
Income (loss) from continuing operations before    (19,409)      6,880
income taxes
Income taxes                                       --            --
Income (loss) from continuing operations           (19,409)      6,880
Income from discontinued operations                901           --
Net income (loss)                                  (18,508)      6,880
Preferred stock dividends                          (2,155)       (2,823)
Accretion of redeemable preferred stock            (501)         (826)
Net income (loss) available to common stockholders $(21,164)    $3,231
Income (loss) per common share                                   
Basic income (loss) per share - continuing         $(1.78)      $0.13
operations
Basic income (loss) per share - discontinued       0.07          --
operations
Basic income (loss) per share                     $(1.71)      $0.13
                                                                
Diluted income (loss) per share - continuing       $(1.78)      $0.13
operations
Diluted income (loss) per share - discontinued     0.07          --
operations
Diluted income (loss) per share                   $(1.71)      $0.13
                                                                
Weighted average common shares outstanding                       
Basic                                             12,403        24,395
Diluted                                           12,403        24,509


PostRock Energy Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
                                              December 31, June 30,
                                              2012         2013
ASSETS
Current assets                                             
Cash and equivalents                          $525       $268
Restricted cash                                1,500       --
Accounts receivable - trade, net              7,207       7,952
Other receivables                             180         203
Inventory                                     990         855
Other                                          2,100       1,016
Derivative financial instruments              1,771       3,326
Total                                         14,273      13,620
Oil and gas properties, full cost, net        107,531     123,145
Other property and equipment, net             14,244      14,118
Other, net                                     2,180       2,115
Equity investment                              7,820       12,265
Derivative financial instruments              615         1,292
Total assets                                  $146,663   $166,555
                                                          
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities                                        
Accounts payable                              $9,373     $5,822
Revenue payable                               4,447       4,662
Accrued expenses and other                     4,928       4,223
Derivative financial instruments              4,449       2,325
Total                                         23,197      17,032
Derivative financial instruments              2,638       3,113
Long-term debt                                 57,500      77,500
Asset retirement obligations                   10,868      11,491
Other                                          316         164
Total liabilities                              94,519      109,300
                                                          
Commitments and contingencies                              
Series A cumulative redeemable preferred stock 73,152      78,451
                                                          
Stockholders' deficit                                      
Preferred stock                                3           3
Common stock                                   213         248
Additional paid-in capital                    396,732     397,906
Treasury stock, at cost                        --          (383)
Accumulated deficit                           (417,956)   (418,970)
Total stockholders' deficit                    (21,008)    (21,196)
Total liabilities and stockholders' deficit    $146,663   $166,555


PostRock Energy Corporation
Condensed Consolidated Statement of Cash Flows
(in thousands)
(Unaudited)
                                                                 
                                                     Six Month Ended June 30,
                                                     2012         2013
Cash flows from operating activities                            
Net loss                                            $(11,161)  $(1,014)
Adjustments to reconcile net loss to net cash from               
operations
Depreciation, depletion and amortization            14,794      13,121
Share-based and other compensation                  1,138       2,141
Amortization of deferred loan costs                 797         215
Change in fair value of derivative financial         19,314      (3,880)
instruments
Loss (gain) on disposal of assets                   162         (10)
Gain on forgiveness of debt                         (255)       --
Loss (gain) from equity investment                  2,467       (4,445)
Other non-cash changes to items affecting net loss  207         --
Changes in assets and liabilities                               
Receivable                                          4,039       (768)
Payables                                            (6,591)     (4,507)
Other                                               1,757       396
Net cash flows from operating activities            26,668      1,249
                                                                 
Cash flows from investing activities                            
Restricted cash                                     --         1,500
Proceeds from sale of assets                        293         194
Expenditures for equipment, development, leasehold   (8,998)     (26,821)
andpipeline
Net cash flows used in investing activities         (8,705)     (25,127)
                                                                 
Cash flows from financing activities                            
Proceeds from debt                                  --          20,000
Repayments of debt                                  (25,645)    --
Debt and equity financing costs                     (76)        (454)
Proceeds from issuance of common stock              7,514       4,075
Net cash flows from (used in) financing activities  (18,207)    23,621
Net decrease in cash and equivalents                (244)       (257)
Cash and equivalents - beginning of period          349         525
Cash and equivalents - end of period                $105       $268

CONTACT: Company Contact:
         David J. Klvac
         EVP & Chief Financial Officer
         dklvac@pstr.com
         (405) 815-4304

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