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8-K - FORM 8-K - PostRock Energy Corpd534263d8k.htm

Exhibit 99.1

For Immediate Release



PostRock Reports First Quarter Results

OKLAHOMA CITY – May 8, 2013 – PostRock Energy Corporation (NASDAQ: PSTR) today announced its results for the quarter ended March 31, 2013.




During the quarter, 55 oil wells were drilled and 42 recompleted



Oil sales averaged 363 net Bbls a day, a 77.4% increase from the prior-year period



Production currently averages over 500 net Bbls a day



Due to an increase in proved reserves value, the borrowing base was increased to $95 million

Key Financial Results



Revenue reached to $16.1 million, 12.1% above the prior-year period



Oil contributed 18% of revenues, versus 13% in the prior-year period



Operating expenses (production costs plus G&A) fell to $13.3 million, 15.5% below the prior-year period



Interest expense fell to $641,000, 76.2% below the prior-year period

Development and Leasing Activities

Cherokee Basin. In the quarter, 55 oil wells were drilled and 40 recompleted. An additional 150 oil wells and 20 recompletions in the Basin should be completed in the remainder of 2013.

Central Oklahoma. In the quarter, two oil wells were recompleted in Central Oklahoma. Initial results indicate IRRs of more than 100%. During the period, approximately 1,100 additional acres were acquired bringing leasehold to 2,500 net acres. PostRock plans to recomplete seven additional wells and drill five wells, including two horizontals in Central Oklahoma, by year-end while continuing to add leasehold. Individual projects in Central Oklahoma are expected to have a more significant impact on production and reserves than those in the Cherokee Basin.

Financial Results

Natural gas revenue, excluding hedges, rose 5.7% from the prior-year period to $12.4 million. The increase was due to a 22.3% increase in realized gas prices, which reached $3.34 per Mcf, partially offset by a 12.9% production decline to 41.3 MMcf per day. The drop in gas production resulted from the absence of gas development projects in the last 12 months as gas prices were at uneconomic levels. Oil revenue rose 60.0% from the prior-year period to $3.0 million. The increase was the result of a 77.4% increase in sales volume, offset by an 8.8% decrease in realized prices to $90.49 per Bbl. The Company received an average of $3.87 a barrel below the NYMEX price during the quarter. Gathering revenue fell 6.4%, to $654,000, largely due to reduced volumes.

Production costs, including lease operating expenses, gathering costs and production taxes, totaled $9.8 million, a 12.2% decrease from $11.1 million during the prior-year period (excluding non-recurring field restructuring costs of $368,000 in the prior-year). The decrease was driven by lower maintenance, labor and electricity costs and higher capitalized operating expenses. Recurring production costs were $2.50 per Mcfe versus $2.51 in the prior-year period.

General and administrative expenses fell to $3.5 million, a 16.8% decrease from the prior-year period, primarily due to lower compensation costs of $482,000 and $231,000 lower legal and professional fees.

The Company had a realized loss from derivative financial instruments of $873,000 compared to a realized gain of $12.1 million in the prior-year period. The loss was due to $1.0 million of realized losses on Southern Star basis swaps, partially offset by $128,000 of realized gains on NYMEX oil swaps. The last of the Southern Star basis swaps, which had a mark-to-market loss of $3.8 million at March 31st, expire in December 2013.

Due to appreciation of Constellation Energy Partners’ unit price during the quarter, a mark-to-market gain of $3.6 million was recorded.


In February, PostRock entered into additional oil and gas swaps which took effect in March and April, respectively. In combination with existing swaps, an average of 32 MMcf and 240 Bbls a day are hedged for the remaining nine months of 2013 at weighted average prices of $4.01 per Mcf and $100.49 per Bbl. It is expected that the Southern Star basis swaps will have a loss of roughly $420,000 per month from April through December.


     Apr. - Dec.
     2014      2015      2016  

NYMEX Gas Swaps


Volume (MMBtu)

     8,711,037         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)

     66,114         79,548         71,568         65,568   

Weighted Average Price (Bbl)

   $ 100.49       $ 96.28       $ 92.73       $ 90.33   














At March 31, 2013, $66.0 million was borrowed under the revolving credit facility, an increase of $8.5 million from December 31, 2012. The increase was driven primarily by the fact that $5.6 million of late December payments for the royalty settlement and property taxes did not clear until early January.

At March 31, 2013, the quarterly preferred dividend to White Deer was paid-in-kind increasing its liquidation value by $2.7 million to $94.1 million. As part of the dividend, White Deer also received 1.6 million additional warrants with an average exercise price of $1.75 a share. White Deer currently holds 9.8 million common shares and 35.9 million warrants exercisable at prices between $1.42 and $6.39 per share.

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

     December 31,     March 31,  
     2012     2013  
     (in thousands)  

Cash and equivalents

   $ 525      $ 65   







Long-term debt (incl. current maturities)

   $ 57,500      $ 66,000   

Redeemable preferred stock

   $ 73,152      $ 75,732   

Stockholders’ deficit

     (21,008     (27,571







Total capitalization

   $ 109,644      $ 114,161   







Capital Expenditures

During the quarter, capital expenditures totaled $10.1 million. This included $8.9 million on oil directed drilling and recompletions, $791,000 on maintenance related projects, including trucks and compressor optimization and $378,000 for leasehold.

Management Comment

Terry W. Carter, PostRock’s President and Chief Executive Officer, said, “We are very pleased with our early progress in oil development. However, we recognize that our gas decline continues to be significant as gas prices have not reached a point where we can profitably invest in drilling. While we await a better gas market, the ongoing reconfiguration of our compression fleet will result in significant fuel savings and other cost reductions. This should begin to moderate our gas production decline.

Our recent Central Oklahoma successes, give me confidence that we can significantly increase our oil production in the region. At year end, Central Oklahoma represented less than 1% of our acreage but more than 50% of our oil reserves. Our leasehold position in the area is slowly but steadily increasing. We plan additional recompletions in the second and third quarters and we plan to begin development in this area in the third quarter. These projects are expected to have a more significant impact on the Company’s overall reserves and production per project. As we build on our recent oil production and development trend, we believe we will materially enhance the value of our shareholders’ investment.”

Webcast and Conference Call

PostRock will host a webcast and conference call tomorrow, May 9, 2013, at 10:00 a.m. Central Time. The 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) 516-1003.

PostRock Energy Corporation is engaged in the acquisition, exploration, 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 oil producing properties in Central Oklahoma and 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 or By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes.

Company Contact:

David J. Klvac

EVP & Chief Financial Officer

(405) 815-4304

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,  
     2012     2013  
     (in thousands)  

Net income (loss) from continuing operations

   $ 6,008      $ (7,894

Adjusted for:


Interest expense, net

     2,696        641   

Depreciation, depletion, and amortization

     6,162        6,428   








   $ 14,866      $ (825







Other income, net

     (11     (13

Gain on equity investment

     (4,169     (3,582

Unrealized loss from derivative financial instruments

     60        6,248   

(Gain) loss on disposal of assets

     (104     31   

Stock-based compensation

     442        719   

Other non-cash compensation

     —          209   







Adjusted EBITDA

   $ 11,084      $ 2,787   







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 March 31,  
     2012     2013  



Natural gas sales

   $ 11,774      $ 12,442   

Crude oil sales

     1,848        2,957   


     699        654   








     14,321        16,053   

Costs and expenses


Production expense

     11,501        9,775   

General and administrative

     4,263        3,546   

Depreciation, depletion and amortization

     6,162        6,428   

Loss (gain) on disposal of assets

     (104     31   








     21,822        19,780   







Operating loss

     (7,501     (3,727

Other income (expense)


Realized gains (losses) from derivative financial instruments

     12,085        (873

Unrealized loss from derivative financial instruments

     (60     (6,248

Gain on equity investment

     4,169        3,582   

Other income, net

     11        13   

Interest expense, net

     (2,696     (641








     13,509        (4,167







Income (loss) from continuing operations before income taxes

     6,008        (7,894

Income taxes

     —          —     







Income (loss) from continuing operations

     6,008        (7,894

Income from discontinued operations

     1,339        —     







Net income (loss)

     7,347        (7,894

Preferred stock dividends

     (2,093     (2,740

Accretion of redeemable preferred stock

     (471     (778







Net income (loss) available to common stockholders

   $ 4,783      $ (11,412







Income (loss) per common share


Basic income (loss) per share - continuing operations

   $ 0.31      $ (0.50

Basic income (loss) per share - discontinued operations

     0.12        —      







Basic income (loss) per share

   $ 0.43      $ (0.50







Diluted income (loss) per share - continuing operations

   $ 0.27      $ (0.50

Diluted income (loss) per share - discontinued operations

     0.10        —      







Diluted income (loss) per share

   $ 0.37      $ (0.50







Weighted average common shares outstanding



     11,206        22,763   








     12,786        22,763   









(in thousands)



     December 31,
    March 31,

Current assets


Cash and equivalents

   $ 525      $ 65   

Restricted cash

     1,500        1,500   

Accounts receivable - trade, net

     7,207        6,944   

Other receivables

     180        459   


     990        854   


     2,100        1,069   

Derivative financial instruments

     1,771        266   








     14,273        11,157   

Oil and gas properties, full cost, net

     107,531        112,000   

Other property and equipment, net

     14,244        13,450   

Other, net

     2,180        2,091   

Equity investment

     7,820        11,402   

Derivative financial instruments

     615        644   







Total assets

   $ 146,663      $ 150,744   







Current liabilities


Accounts payable

   $ 9,373      $ 5,765   

Revenue payable

     4,447        4,324   

Accrued expenses and other

     4,928        3,165   

Derivative financial instruments

     4,449        5,723   








     23,197        18,977   

Derivative financial instruments

     2,638        6,136   

Long-term debt

     57,500        66,000   

Asset retirement obligations

     10,868        11,190   


     316        280   







Total liabilities

     94,519        102,583   

Commitments and contingencies


Series A cumulative redeemable preferred stock

     73,152        75,732   

Stockholders’ deficit


Preferred stock

     3        3   

Common stock

     213        237   

Additional paid-in capital

     396,732        398,039   

Accumulated deficit

     (417,956     (425,850







Total stockholders’ deficit

     (21,008     (27,571







Total liabilities and stockholders’ deficit

   $ 146,663      $ 150,744   









(in thousands)



     Three Month Ended March 31,  
     2012     2013  

Cash flows from operating activities


Net income (loss)

   $ 7,347      $ (7,894

Adjustments to reconcile net income (loss) to net cash from (used in) operations


Depreciation, depletion and amortization

     7,013        6,428   

Stock-based compensation

     442        719   

Other non-cash compensation

     —          209   

Amortization of deferred loan costs

     409        104   

Change in fair value of derivative financial instruments

     60        6,248   

Loss (gain) on disposal of assets

     (109     31   

Gain from equity investment

     (4,169     (3,582

Other non-cash changes to items affecting net loss

     130        (15

Changes in assets and liabilities



     3,356        153   


     (555     (5,559


     (3,489     329   







Net cash flows from (used in) operating activities

     10,435        (2,829







Cash flows from investing activities


Proceeds from sale of assets

     232        12   

Expenditures for equipment, development, leasehold and pipeline

     (4,491     (9,211







Net cash flows used in investing activities

     (4,259     (9,199







Cash flows from financing activities


Proceeds from debt

     —          8,500   

Repayments of debt

     (14,000     —     

Debt and equity financing costs

     —          (224

Proceeds from issuance of common stock

     7,500        3,292   







Net cash flows from (used in) financing activities

     (6,500     11,568   







Net decrease in cash and equivalents

     (324     (460

Cash and equivalents - beginning of period

     349        525   







Cash and equivalents - end of period

   $ 25      $ 65