PostRock Reports First Quarter Results

PostRock Reports First Quarter Results

OKLAHOMA CITY, May 13, 2014 (GLOBE NEWSWIRE) -- PostRock Energy Corporation
(Nasdaq:PSTR)  today announced its results for the quarter ended March 31,
2014.

Highlights

  *Revenue totaled $21.8 million, up 36% from the prior-year period.
  *Production, using a 19:1 oil-to-gas economic equivalency, averaged 47.5
    MMcfe per day, down 2% from the prior-year period due primarily to adverse
    weather in the quarter.
  *Oil production averaged 595 barrels a day, a 64% increase from the
    prior-year period.
  *Oil contributed 23% of revenues, compared to 18% in the prior-year period.
  *A settlement was reached with Constellation Energy Partners, LLC ("CEP")
    and Sanchez Energy Partners I, L.P. ("SEPI"). To date, the Company has
    received $9.1 million pursuant to the settlement and hopes to recover an
    additional $12.5 million by year end.
  *April's oil production was 695 net barrels a day, or 17% above the first
    quarter's average.
  *By April 30, debt had decreased $9.0 million from its March 31 level to
    $86.0 million.

Operational Discussion

Winter Impact on Production–Oil and gas production was negatively impacted,
primarily in the Cherokee Basin, from December through early March due to the
extreme winter. The Company estimates that first quarter production was
reduced by approximately 1.1 net MMcf per day and 40 net barrels of oil per
day, or 1.9 net MMcfe per day at a 19:1 economic equivalency, due to weather.
By April 30, gas production had nearly returned to expected rates, and oil
production was above expectations. On an economic equivalency basis, April
production averaged 50.1 net MMcfe per day, a 5% increase over the first
quarter and 2% above the year earlier period.

Central Oklahoma – Oil production for the first quarter averaged 356 net
barrels per day. While modest, this was a 120% increase over the prior-year
period. During the quarter, the Company worked over three wells targeting the
Hunton Carbonate. Since March 31, an additional seven workovers have been
performed. Initial results have been positive, as the initial eight
development workovers, now online, have increased production by approximately
190 net barrels of oil per day, and, collectively, are expected to generate in
excess of 100% IRR. As a result, production for the month of April averaged
461 net barrels a day, 29% higher than the first quarter's average. The
remaining two workovers were put on production on May 7. The Company is also
currently drilling a horizontal well targeting the Hunton formation.

On January 31, the Company purchased additional interests in producing
properties it acquired in November 2013. The additional interests were
purchased for $1.8 million, including $900,000 cash and 725,806 shares of
common stock.

For the balance of the year, the Company plans to spend $20 million on new
horizontal and vertical wells targeting multiple formations, including the
Hunton Carbonate and the Woodford Shale. We also expect to perform additional
development workovers throughout the year.

Cherokee Basin–Gas and oil production for the first quarter averaged 34.8 net
MMcf per day and 212 net barrels per day, respectively. On an economic
equivalency basis, production declined 9% from the prior-year period to an
average of 38.8 net MMcfe per day. The decline in gas volume was largely due
to weather and the lack of ongoing development in the Basin.

One of the Company's most significant and challenging projects over the last
18 months has been the reconfiguration of its Cherokee Basin compression
system. The project was designed to improve energy efficiency and reduce
gathering costs. The project was completed on May 6 at a total cost of $8.5
million. It is expected to result in annual rental savings of $4.6 million and
to reduce fuel consumption by approximately 1.6 MMcf a day, which should add
approximately $2.6 million in revenues and cash flow on an annual basis at
current gas prices.

Financial Discussion

Revenues increased 36% from the prior-year period to $21.8 million. Despite
lower volumes, gas revenue increased 28% to $16.0 million, due to a 47%
increase in realized prices to $4.90 per Mcf. Oil revenue increased 73% to
$5.1 million, as production grew 64% and the realized price of $95.27 per
barrel was 5% higher than the prior-year period. Gas gathering revenue
increased 12% to $735,000, as higher gas pricing more than offset lower
third-party volumes.

Total production costs, which consist of lease operating expenses ("LOE"),
gathering expenses, and severance and ad valorem taxes ("production taxes")
increased 5% from the prior-year period to $10.3 million. The increase was
largely due to lower capitalized labor and equipment costs of $666,000, as a
result of a lower number of development projects in 2014. Also contributing to
the increase were higher repair and maintenance costs of $320,000, largely due
to the wells drilled in the Company's 2013 development program which increased
well count by approximately 5%, and higher production taxes of $177,000 due to
higher gas pricing and increased oil production. Partially offsetting the
increase were compressor rental savings resulting from the compressor
reconfiguration project, of approximately $600,000, coupled with a reduction
of labor and equipment costs of $250,000.

General and administrative expenses increased 10%, or $363,000, from the
prior-year period to $3.9 million. Excluding expenses of $29,000 associated
with the CEP litigation and a one-time payroll tax expense of $62,000 for
executive deferred compensation, G&A increased by 8%. Of the increase,
$144,000 was related to higher licensing and implementation costs for new
accounting, planning and technical software. Additionally, $128,000 was due to
an increase in wages as the average employee headcount at the Company's
headquarters increased by five due to the Company's production and leasehold
acquisitions in Oklahoma. Going forward, both license/software implementation
costs and wages should moderate as expected system cost savings and the impact
of recent employee departures are realized throughout the year.

Due to the accounting treatment of the Series A mandatorily redeemable
preferred stock, an additional $2.6 million of non-cash interest expense was
added during the quarter. Excluding this expense, net interest expense was
$965,000, an increase of 50% over the prior-year period, as debt outstanding
increased.

The Company had a $2.5 million realized hedging loss in the quarter compared
to a loss of $873,000 in the prior-year period, as a result of rising gas and
oil prices.

Due to appreciation of the market price of CEP units during the first quarter,
a mark-to-market gain of $1.6 million was recorded.

Hedges

The Company's natural gas and crude oil swaps cover an average of 28.2 MMcf
and 317 barrels per day for the remaining nine months of 2014 at weighted
average prices of $4.01 per Mcf and $95.19 per barrel. Compared to the
Company's 2014 PDP production forecast and total proved reserves production
forecast in its December 31, 2013 reserve report, this represents
approximately 82% and 81% of gas production, respectively, and 64% and 49% of
oil production, respectively. The following table summarizes the Company's
derivative positions at March 31, 2014. The Company has no Southern Star basis
swaps outstanding.

                                April - Dec.           
                                2014         2015       2016
NYMEX Gas Swaps                                        
Volume (MMBtu)                   7,745,679   8,983,560 7,814,028
Weighted Average Price ($/MMBtu) $ 4.01       $ 4.01     $ 4.01
NYMEX Oil Swaps                                        
Volume (Bbls)                    87,057      71,568    65,568
Weighted Average Price ($/Bbl)   $ 95.19      $ 92.73    $ 90.33

Debt

At March 31, $95.0 million was borrowed under the revolving credit facility,
an increase of $3.0 million from year end. As of April 30, the Company had
$86.0 million drawn on the facility and $1.4 million in letters of credit
outstanding, resulting in $27.6 million remaining available on the facility.
The initial payment of $8.3 million received from the CEP lawsuit settlement,
discussed below, was used to reduce debt.

At March 31, PostRock elected to pay in-kind its quarterly dividend on its
Series A preferred stock, increasing the liquidation value of the preferred by
$3.1 million to $105.9 million. As part of the dividend, White Deer also
received 2.4 million additional warrants with a weighted average strike price
of $1.27 a share. At March 31, White Deer held a total of 22.6 million
warrants exercisable at an average price of $1.51 a share and 11.0 million
common shares.

                                      December 31, March 31,
                                      2013         2014
Capitalization                         (in thousands)
Long-term debt                         $ 92,000     $ 95,000
Mandatorily redeemable preferred stock 64,523      64,933
Redeemable preferred stock             23,828      26,098
Stockholders' deficit                  (30,034)    (34,715)
Total capitalization                   $ 150,317    $ 151,316

Capital Expenditures

During the quarter, capital expenditures totaled $6.8 million. This included
$2.0 million spent on development projects which include the three Central
Oklahoma development workovers. Maintenance related projects, primarily the
Company's compressor reconfiguration project, were $2.7 million, producing
property acquisition costs in Central Oklahoma, discussed above, were $1.8
million and leasehold costs were approximately $300,000.

CEP Settlement

On March 31, a settlement of the Company's CEP lawsuit was reached. The
Company expects to recover a target of $21.6 million. At the time of
settlement, all of the Company's CEP Class A units and 414,938 Class B units
were transferred to SEPI. Simultaneously, PostRock received an initial payment
of approximately $8.3 million. Over the next nine to twelve months, the
Company intends to sell its remaining 5,503,956 Class B units in orderly block
and other market transactions, subject to minimum price, volume and other
limitations set forth in the settlement agreement. As of April 30, the Company
had sold 291,767 Class B units at an average price of $2.52.

Webcast and Conference Call

PostRock will host a webcast and conference call tomorrow, May 14, 2014, 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, exploration,
development, production and gathering of crude oil and natural gas. Its
primary production activity is focused in the Cherokee Basin, a 15-county
region in southeastern Kansas and northeastern Oklahoma, and Central 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 and gas
producing properties in the Appalachian Basin.

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.

Production for the Current and Prior-Year Periods

The following table represents total period production for the current and
prior-year periods:

                                                 Total Period Production
                                                 Three Month Ended March 31,
                                                 2013          2014
                                                              
Production                                                     
Natural gas (MMcf)                                             
Cherokee Basin                                    3,587        3,131
Central Oklahoma                                  —            9
Appalachian Basin                                 133          118
Total natural gas                                 3,720        3,258
Crude oil (Bbls)                                               
Cherokee Basin                                    13,782       19,061
Central Oklahoma                                  14,606       32,056
Appalachian Basin                                 4,291        2,469
Total crude oil                                   32,679       53,586
Total Production - Natural Gas Equivalent (MMcfe)              
Economic equivalent, 19:1 oil-to-gas basis ^(1)                
Cherokee Basin                                    3,849        3,493
Central Oklahoma                                  278          618
Appalachian Basin                                 215          165
Total natural gas equivalent                      4,342        4,276
Energy equivalent, 6:1 oil-to-gas basis ^(2)                   
Cherokee Basin                                    3,670        3,245
Central Oklahoma                                  88           201
Appalachian Basin                                 159          133
Total natural gas equivalent                      3,917        3,579
                                                              
Realized price (excluding hedges)                              
Crude oil (per Bbl)                               $ 90.49       $ 95.27
Natural gas (per Mcf)                             $ 3.34        $ 4.90
                                                              

(1) Oil and natural gas are converted at the rate of one barrel equals 19
Mcfe based upon the approximate revenue per unit of production (Mcf or Bbl)
realized during the period; $95.27 per barrel of oil and $4.90 per Mcf of gas
factors down to a 19:1 ratio.
(2) Oil and natural gas are converted at the rate of one barrel equals six
Mcfe based upon the approximate relative energy content of oil to natural gas.

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 March 31,
                                                 2013          2014
                                                 (in thousands)
Net (loss)                                        $ (7,894)     $ (6,323)
Adjusted for:                                                  
Interest expense, net                             641          3,530
Depreciation, depletion and amortization          6,428        6,902
EBITDA                                            $ (825)       $ 4,109
Other income, net                                 (13)         —
Gain from equity investment                       (3,582)      (1,619)
Unrealized loss from derivative financial         6,248        2,608
instruments
(Gain) loss on disposal of assets                 31           (19)
Non-cash compensation                             928          979
Acquisition costs                                 —            34
CEPM legal fees                                   —            29
Adjusted EBITDA                                   $ 2,787       $ 6,121

Although EBITDA and adjusted EBITDA are not measures of performance calculated
in accordance with generally accepted accounting principles ("GAAP"),
management considers them important measures of performance. Neither EBITDA
nor adjusted EBITDA are a substitute for the GAAP measures of earnings or cash
flow or 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. EBITDA and adjusted
EBITDA have material limitations as a performance measure because they
exclude, 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 their limitations, neither
EBITDA nor adjusted EBITDA should 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
(Unaudited)

                                        Three Months Ended March 31,
                                        2013                2014
                                        (in thousands, except per share data)
                                                           
Revenues                                                    
Natural gas sales                        $ 12,442            $ 15,963
Crude oil sales                          2,957              5,105
Gathering                                654                735
Total                                    16,053             21,803
Costs and expenses                                          
Production                               9,775              10,272
General and administrative               3,546              3,911
Depreciation, depletion and amortization 6,428              6,902
(Gain) loss on disposal of assets        31                 (19)
Acquisition costs                        —                  34
Total                                    19,780             21,100
Operating income (loss)                  (3,727)            703
Other income (expense)                                      
Realized loss from derivative financial  (873)              (2,507)
instruments
Unrealized loss from derivative          (6,248)            (2,608)
financial instruments
Gain on investment                       3,582              1,619
Other income (expense), net              13                 —
Interest expense, net                    (641)              (3,530)
Total                                    (4,167)            (7,026)
Loss before income taxes                 (7,894)            (6,323)
Income taxes                             —                  —
Net loss                                 (7,894)            (6,323)
Preferred stock dividends                (2,740)            (929)
Accretion of redeemable preferred stock  (778)              (370)
Net loss attributable to common          $ (11,412)          $ (7,622)
stockholders
Net loss per common share                                   
Basic loss per share                     $ (0.50)            $ (0.25)
Diluted loss per share                   $ (0.50)            $ (0.25)
Weighted average common shares                              
outstanding
Basic                                    22,763             31,015
Diluted                                  22,763             31,015



PostRock Energy Corporation
Condensed Consolidated Balance Sheets

                                                     December 31, March 31,
                                                     2013         2014
                                                                 (Unaudited)
                                                     (in thousands)
ASSETS                                                            
Current assets                                                    
Cash and equivalents                                  $ 37         $ 151
Restricted cash                                       —           23
Accounts receivable—trade, net                        7,722       9,332
Other receivables                                     194         8,446
Inventory                                             886         838
Other                                                 820         1,753
Derivative financial instruments                      54          4
Total                                                 9,713       20,547
Oil and natural gas properties, full cost method of   141,911     142,462
accounting, net
Other property and equipment, net                     14,180      13,780
Investment, net                                       14,588      7,873
Derivative financial instruments                      652         469
Other, net                                            2,038       1,920
Total assets                                          $ 183,082    $ 187,051
LIABILITIES AND STOCKHOLDERS' DEFICIT                             
Current liabilities                                               
Accounts payable                                      $ 7,406      $ 7,449
Revenue payable                                       4,397       4,921
Accrued expenses and other                            4,055       3,881
Derivative financial instruments                      1,937       4,917
Total                                                 17,795      21,168
Derivative financial instruments                      1,796       1,191
Long-term debt                                        92,000      95,000
Mandatorily redeemable preferred stock                64,523      64,933
Asset retirement obligations                          13,099      13,345
Other                                                 75          31
Total liabilities                                     189,288     195,668
Commitments and contingencies                                     
Series A Cumulative Redeemable Preferred Stock        23,828      26,098
Stockholders' deficit                                             
Preferred stock                                       1           1
Common stock                                          299         316
Additional paid-in capital                            397,170     399,900
Treasury stock, at cost                               (512)       (1,617)
Accumulated deficit                                   (426,992)   (433,315)
Total stockholders' deficit                           (30,034)    (34,715)
Total liabilities and stockholders' deficit           $ 183,082    $ 187,051



PostRock Energy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)

                                                 Three Months Ended March 31,
                                                 2013           2014
                                                 (in thousands)
Cash flows from operating activities                            
Net loss                                          $ (7,894)      $ (6,323)
Adjustments to reconcile net loss to net cash                   
flows from (used in) operating activities
Depreciation, depletion and amortization          6,428         6,902
Share-based and other compensation                928           968
Amortization of deferred loan costs               104           129
Change in fair value of derivative financial      6,248         2,608
instruments
(Gain) loss on disposal of assets                 31            (19)
Gain on investment                                (3,582)       (1,619)
Other non-cash changes to items affecting net     (15)          2,566
loss
Changes in operating assets and liabilities                     
Accounts receivable                               153           (1,528)
Accounts payable                                  (5,559)       (1,128)
Other                                             329           (1,037)
Net cash flows from (used in) operating           (2,829)       1,519
activities
Cash flows from investing activities                            
Restricted cash                                   —             (23)
Expenditures for equipment, development and       (9,211)       (4,430)
leasehold
Proceeds from sale of assets                      12            59
Net cash flows used in investing activities       (9,199)       (4,394)
Cash flows from financing activities                            
Proceeds from debt                                23,500        19,000
Repayments of debt                                (15,000)      (16,000)
Debt and equity financing costs                   (224)         (11)
Proceeds from issuance of common stock            3,292         —
Net cash flows from financing activities          11,568        2,989
Net increase (decrease) in cash and cash          (460)         114
equivalents
Cash and equivalents beginning of period          525           37
Cash and equivalents end of period                $ 65           $ 151

CONTACT: Company Contact:
         Stephen L. DeGiusti
         EVP, General Counsel & Secretary
         sdegiusti@pstr.com
         (405) 702-7420

PostRock Energy Corporation Logo
 
Press spacebar to pause and continue. Press esc to stop.