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PostRock Reports Third Quarter Results

PostRock Reports Third Quarter Results

OKLAHOMA CITY, Nov. 6, 2013 (GLOBE NEWSWIRE) -- PostRock Energy Corporation
(Nasdaq:PSTR) today announced its results for the quarter ended September 30,
2013.

Key Operating Results

  *Based on a traditional 6:1 oil to gas conversion ratio, a 5% production
    decline from the prior-year period and less than 1% decline from the prior
    period—both the smallest since 2011

    *Quarterly oil sales averaged over 590 net barrels a day, more than
      double the prior-year period and 9% more than the prior period
    *Quarterly natural gas sales averaged 39.6 net Mmcf a day, 9.5% below the
      prior-year period and less than 1% below the prior period

  *Based on PostRock's realized 30:1 oil to gas price equivalency—production
    increased 10% over the prior-year period, the second consecutive quarter
    of growth

Key Financial Results

  *Revenue, excluding hedges, reached $18.6 million, 36% above the prior-year
    period
  *Oil contributed 30% of revenues, compared to 16% in the prior-year period
  *Combined production and general and administrative expenses, excluding
    non-cash compensation, 2.7% below the prior-year period
  *Interest expense fell to $883,000 for the quarter, 66% below the
    prior-year period

Development and Leasing Activities

Central Oklahoma. On November 1, PostRock closed two acquisitions that added
slightly over 22,000 net acres of leasehold in Seminole, Pottawatomie,
Cleveland and McClain counties of Central Oklahoma and approximately 684,000
barrels of oil equivalent ("BOE") to PostRock's proved reserves. Current
production from the acquired properties is approximately 60 net BOE per day.
With these acquisitions, PostRock's total leasehold in Central Oklahoma is
approximately 35,000 net acres, of which approximately 11,000 net acres are
held by production.

During the quarter, two oil wells were recompleted and two vertical wells
targeting multiple pays, including the Hunton and Woodford formations, were
drilled and brought on production.One horizontal well in the Hunton formation
was drilled and brought on production.Total cost of development projects was
$5.3 million.Additionally, one water disposal well was drilled and brought
online at a total cost of $1.2 million.Including the cost of the disposal
well, the project IRR is greater than 50% and the payback period is
approximately 2.75 years.

Cherokee Basin.During the quarter, 35 oil wells were drilled and brought on
production and three wells drilled in the second quarter were brought on
production at a total cost of $4.9 million.Two salt water disposal wells were
drilled and brought online and four tank batteries were built at a total cost
of $0.8 million.Including the cost of the disposal wells and the tank
batteries, the project IRR is greater than 20% and the payback period is
approximately 3.75 years.Additional development in the Cherokee Basin has
been deferred as the Company shifts focus to Central Oklahoma.As gas prices
become more favorable further development will be considered.

Results of Operations

Natural gas revenue rose 15% from the prior-year period to $12.4 million.The
increase was attributable to realized gas prices of $3.41 per Mcf, which were
27% above the prior-year period, partially offset by a 10% decline in volumes
to 39.6 Mmcf per day. As a result of gas prices below a level at which coalbed
methane ("CBM") development is economic, PostRock has not developed any CBM
gas projects in over two years.Oil revenue increased 149% from the prior-year
period to $5.6 million.The increase in oil revenue was due to a 117% increase
in sales volume and a 14% increase in realized prices.Gathering revenue of
$636,000 remained relatively flat compared to the prior-year period, as
reduced throughput was offset by increased pricing during the period.

Production costs, including lease operating expenses, gathering costs and
production taxes increased less than 1% to $10 million.Increased costs
associated with water handling were mostly offset by $0.4 million in reduced
compressor rental costs.

General and administrative expenses decreased 1% to $3.5 million.Excluding
non-cash compensation from both periods, general and administrative expenses
decreased 14% to $2.6 million.During the 2012 period, a $435,000 severance
charge was recorded for the restructuring of our Oklahoma City office and
during the 2013 period, legal expenses were approximately $237,000 higher,
primarily due to litigation with Constellation Energy Partners LLC ("CEP").

The Company had a realized loss from Southern Star basis swaps of $1.2
million, a realized loss from NYMEX oil swaps of $175,000 and a realized gain
from NYMEX gas swaps of $1.2 million, resulting in a $145,000 realized loss
from derivative financial instruments.The Company had a realized gain of $2.7
million in the prior-year period.The last of the basis swaps expire in
December 2013.

During the quarter, CEP's Class B Unit price increased 14% from $1.88 per unit
at June 30 to $2.14 per unit at September 30.This increase resulted in a
mark-to-market gain on PostRock's investment in CEP's Class B Units of
approximately $1.5 million.Also during the quarter, CEP issued additional
Class A Units, reducing the value of PostRock's investment in CEP's Class A
Units and resulted in a mark-to-market loss of approximately $800,000.

Hedges

PostRock's existing swaps average 32 Mmcf of gas and 314 barrels of oil a day
for the remaining three 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 $415,000 per month from October
through December 2013.

                                Oct. - Dec.                      
                                2013        2014        2015       2016
NYMEX Gas Swaps                                                  
Volume (MMbtu)                   2,903,679  10,327,572 8,983,560 7,814,028
Weighted Average Price ($/MMbtu) $4.01     $4.01     $4.01    $4.01
NYMEX Oil Swaps                                                  
Volume (Bbls)                    28,854     116,076    71,568    65,568
Weighted Average Price ($/Bbl)   $99.76    $95.19    $92.73   $90.33

Debt

At September 30, $86.5 million was borrowed under the revolving credit
facility, an increase of $9 million from June 30. On October 29, the Company's
borrowing base was increased by $20 million to $115 million based on 2013
mid-year reserves and production adjusted for the acquisition of the Central
Oklahoma acreage. As of November 6, the Company had $95.0 million drawn on the
facility, $1.3 million in letters of credit outstanding and $0.3 million of
cash on hand, resulting in $19.0 million of available liquidity.

At September 30, the quarterly preferred dividend to White Deer was paid
in-kind increasing the liquidation value of its Series A preferred stock by
$2.9 million to $99.8 million. As part of the dividend, White Deer also
received 2.2 million additional warrants with an average exercise price of
$1.31 a share. White Deer currently holds 9.8 million common shares and 39.9
million warrants exercisable at prices between $1.27 and $6.39 per share.

PostRock Energy Corporation
Capitalization
(in thousands)
                                        
                          December 31, September 30,
                          2012           2013
Cash and equivalents      $525         $321
Long-term debt             $57,500      $86,500
Redeemable preferred stock 73,152        81,242
Stockholders' deficit     (21,008)      (23,813)
Total capitalization       $109,644     $143,929

Capital Expenditures

During the quarter capital expenditures totaled $16.7 million. This included
$12.5 million on drilling and recompletions, which was primarily related to
oil development and related infrastructure, $3.0 million on maintenance
capital, primarily related to compressor optimizations, and $1.2 million for
leasehold acquisitions.

CEP Litigation

On August 30, 2013, Constellation Energy Partners Management, LLC ("CEPM"), a
wholly owned subsidiary of PostRock, together with CEPM's two duly selected
members on the CEP Board of Managers (the "Plaintiffs"), filed suit in the
Delaware Court of Chancery against CEP, CEP's Chief Executive Officer, three
members of the five-person CEP Board of Managers, Sanchez Oil & Gas
Corporation and Sanchez Energy Partners I, LP (collectively, the "Sanchez
Defendants"), Antonio R. Sanchez, III and Gerald F. Willinger, as Defendants.

The lawsuit alleges that, through CEP's issuance of units to the Sanchez
Defendants in exchange for all of the equity of an entity that owns oil and
natural gas properties, the Defendants conspired to dilute CEPM's ownership
interest in CEP and thereby remove CEPM's right, as the sole owner of Class A
units, to select two Managers to the CEP Board of Managers.

Among other relief, Plaintiffs seek a declaration that the purported issuance
of units to the Sanchez Defendants violates the CEP operating agreement and is
therefore invalid and void.Plaintiffs also seek to have CEPM's two duly
selected members reinstated to the CEP Board of Managers.Currently, discovery
is ongoing with a trial date scheduled in mid-December 2013.

Management Comment

Terry W. Carter, PostRock's President and Chief Executive Officer, said:
"Although we experienced some delays and a few start-up problems, I am pleased
that we've successfully drilled, completed and begun production from our first
three development wells in Central Oklahoma. In particular, our first
Searight field horizontal well provides validation that we can further develop
Searight and possibly similar mature fields by applying horizontal drilling
and completion technology.

"With the recent Central Oklahoma acquisitions, we expect to expand our
horizontal development, conventional vertical drilling, and continue our
successful development workover programs.I'm excited that we've begun to
build a position that provides our shareholders with multiple attractive
options to enhance shareholder value."

Webcast and Conference Call

PostRock will host a webcast and conference call tomorrow, November 7, 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 September 30,
                                             2012              2013
                                                              
Net income (loss) from continuing operations $ (19,930)       $(645)
Adjusted for:                                                  
Interest expense, net                        2,615            883
Depreciation, depletion and amortization     7,321            6,957
EBITDA                                        $(9,994)        $7,195
Other income, net                             (62)             —
Loss (gain) from equity investment           2,111            (740)
Unrealized loss (gain) from derivative        6,523            (1,322)
financial instruments
Impairment of oil and gas properties          4,309            —
Loss (gain) on disposal of assets            64               (159)
Non-cash compensation                         465              836
Adjusted EBITDA                               $3,416          $5,810

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.

PostRock Energy Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)

                                             Three Months Ended September 30,
                                             2012             2013
Revenues                                                     
Natural gas sales                            $10,819        $12,426
Crude oil sales                              2,232           5,552
Gathering                                    646             636
Total                                        13,697          18,614
Costs and expenses                                           
Production expense                           9,917           9,983
General and administrative                   3,495           3,450
Depreciation, depletion and amortization     7,321           6,957
Impairment of oil and gas properties         4,309           —
(Gain) loss on disposal of assets            64              (159)
Acquisition cost                             —               62
Total                                        25,106          20,293
Operating loss                               (11,409)        (1,679)
Other income (expense)                                       
Realized gains (losses) from derivative       2,666           (145)
financial instruments
Unrealized gains (losses) from derivative     (6,523)         1,322
financial instruments
Gain (loss) from equity investment           (2,111)         740
Other income                                 62              —
Interest expense, net                        (2,615)         (883)
Total                                        (8,521)         1,034
Loss from continuing operations before income (19,930)        (645)
taxes
Income taxes                                 —               —
Loss from continuing operations              (19,930)        (645)
Loss from discontinued operations            (5,244)         —
Net loss                                     (25,174)        (645)
Preferred stock dividends                    (2,341)         (2,907)
Accretion of redeemable preferred stock      (568)           (877)
Net loss attributable to common stockholders $(28,083)      $(4,429)
Net loss per share common share                              
Basic loss per share—continuing operations   $(1.58)        $(0.18)
Basic loss per share—discontinued operations $(0.36)        $—
Basic loss per share                         $(1.94)        $(0.18)
Diluted loss per share—continuing operations $(1.58)        $(0.18)
Diluted loss per share—discontinued           $(0.36)        $—
operations
Diluted loss per share                       $(1.94)        $(0.18)
Weighted average common shares outstanding                   
Basic                                        14,477          25,000
Diluted                                      14,477          25,000


PostRock Energy Corporation
Condensed Consolidated Balance Sheets
(in thousands)
                                                             
                                               December 31, September 30,
                                               2012           2013
                                                             (Unaudited)
ASSETS                                                        
Current assets                                               
Cash and equivalents                           $525         $321
Restricted cash                                1,500         —
Accounts receivable—trade, net                 7,207         7,574
Other receivables                              180           282
Inventory                                      990           996
Other                                          2,100         747
Derivative financial instruments               1,771         2,646
Total                                          14,273        12,566
Oil and natural gas properties, full cost , net 107,531       132,518
Other property and equipment, net              14,244        14,624
Equity investment                              7,820         13,005
Derivative financial instruments               615           694
Other, net                                     2,180         2,014
Total assets                                   $146,663     $175,421
LIABILITIES AND STOCKHOLDERS' DEFICIT                         
Current liabilities                                          
Accounts payable                               $9,373       $8,334
Revenue payable                                4,447         4,344
Accrued expenses and other                     4,928         4,291
Derivative financial instruments               4,449         1,406
Total                                          23,197        18,375
Derivative financial instruments               2,638         1,433
Long term debt                                 57,500        86,500
Asset retirement obligations                   10,868        11,565
Other                                          316           119
Total liabilities                               94,519        117,992
Commitments and contingencies                                
Series A cumulative redeemable preferred stock  73,152        81,242
Stockholders' equity                                          
Preferred stock                                 3             3
Common stock                                    213           249
Additional paid-in capital                     396,732       395,964
Treasury stock, at cost                        —             (414)
Accumulated deficit                            (417,956)     (419,615)
Total stockholders' deficit                    (21,008)      (23,813)
Total liabilities and stockholders' deficit    $146,663     $175,421


PostRock Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
                                                       Nine Months Ended
                                                       September 30,
                                                       2012        2013
Cash flows from operating activities                              
Net loss                                               $ (36,335) $(1,659)
Adjustments to reconcile net loss to net cash from                 
operations
Depreciation, depletion and amortization               22,960     20,078
Impairment of oil and gas properties                    4,309      —
Share-based and other compensation                     1,601      2,976
Amortization of deferred loan costs                    1,208      334
Change in fair value of derivative financial            25,836     (5,202)
instruments
Loss (gain) on disposal of assets                      5,811      (169)
Gain on forgiveness of debt                            (255)      —
Loss (gain) from equity investment                     4,578      (5,185)
Other non-cash changes to items affecting net loss     389        —
Changes in operating assets and liabilities                       
Receivables                                            3,253      (469)
Payables                                               (8,850)    (2,426)
Other                                                  4,927      643
Net cash flows from operating activities               29,432     8,921
Cash flows from investing activities                              
Restricted cash                                        —          1,500
Expenditures for equipment, development, leasehold and  (12,276)   (43,601)
pipeline
Proceeds from sale of assets                           53,201     372
Net cash flows from (used in) investing activities     40,925     (41,729)
Cash flows from financing activities                              
Proceeds from debt                                     —          29,000
Repayments of debt                                     (90,145)   —
Debt and equity financing costs                        (81)       (472)
Proceeds from issuance of preferred stock and warrants  6,000      —
Proceeds from issuance of common stock                 13,682     4,076
Net cash flows from (used in) financing activities     (70,544)   32,604
Net decrease in cash and cash equivalents              (187)      (204)
Cash and equivalents beginning of period               349        525
Cash and equivalents end of period                     $162      $321

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

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