OKLAHOMA CITY, Aug. 10, 2010 (GLOBE NEWSWIRE) -- PostRock Energy Corporation (Nasdaq:PSTR) today announced the filing of its Quarterly Report on Form 10-Q for the period ended June 30, 2010.
Management Comment
David C. Lawler, President and Chief Executive Officer of PostRock said, "During the second quarter we successfully completed our 2010 development plan in the Cherokee Basin, completing and connecting 114 new wells on time and under budget. Also during the quarter, we increased our Cherokee Basin well service activity, returning 190 wells to production in order to capitalize on more attractive natural gas prices. We remain focused on reducing debt, lowering costs and simplifying our capital structure."
Results of Operations for the Three Months Ended June 30, 2010
Oil and gas sales increased $4.0 million, or 24.9%, to $20.1 million during the three months ended June 30, 2010 from $16.1 million during the three months ended June 30, 2009. This increase was primarily due to an increase in average realized natural gas prices which resulted in increased revenues of $5.7 million, partially offset by lower production volumes, which decreased revenue by $1.7 million. Average realized prices on an equivalent basis (Mcfe) increased to $4.10 per Mcfe for the three months ended June 30, 2010, from $2.93 per Mcfe for the three months ended June 30, 2009.
Third party natural gas pipeline revenue decreased $3.9 million, or 51.1%, to $3.7 million during the three months ended June 30, 2010, from $7.6 million during the three months ended June 30, 2009. The decrease was primarily due to the loss of a significant interstate pipeline customer during the fourth quarter of 2009 and renegotiated contracts at lower volumes and rates with another existing interstate pipeline customer.
Oil and gas production costs, which include lease operating expenses, severance taxes and ad valorem taxes, decreased $0.3 million, or 3.4%, to $7.0 million during the three months ended June 30, 2010, from $7.3 million during the three months ended June 30, 2009. The decrease was primarily due to lower lease operating expenses of $1.4 million offset by increased ad valorem and severance taxes of $1.1 million. Production costs were $1.43 per Mcfe for the three months ended June 30, 2010 as compared to $1.32 per Mcfe for the three months ended June 30, 2009. Pipeline operating expense decreased $0.2 million, or 3.1%, to $6.7 million during the three months ended June 30, 2010, from $6.9 million during the three months ended June 30, 2009.
General and administrative expenses decreased $2.5 million, or 24.1%, to $8.0 million during the three months ended June 30, 2010, from $10.5 million during the three months ended June 30, 2009. Expenses decreased as a result of higher costs in 2009 for the reaudit and restatement of previously issued financials and fees to financial advisors offset by expenses incurred in 2010 on activities to refinance outstanding debt.
Depreciation, depletion and amortization decreased approximately $4.2 million, or 46.2%, during the three months ended June 30, 2010 to $4.9 million from $9.1 million during the three months ended June 30, 2009. This decrease was primarily due to an increase to oil and natural gas reserves as a result of higher prices in 2010 which decreased the depreciation rate per unit in the current quarter compared to the prior year quarter as well as an impairment of $165.7 million on long lived pipeline related assets recorded during the fourth quarter of 2009, which subsequently lowered the depreciable basis of these assets.
Adjusted EBITDA decreased $36.0 million, or 78.8%, to $9.7 million during the three months ended June 30, 2010, from $45.7 million during the three months ended June 30, 2009. The decrease was primarily driven by reduced realized gains on derivative financial instruments of $39.1 million. During June 2009, the Company amended or exited certain above market derivative contracts in order to generate $26 million for the repayment of a credit facility borrowing base deficiency. The remainder was the result of lower volumes hedged at lower prices as well as reduced gas pipeline revenues primarily due to the loss of a significant customer in the fourth quarter of 2009.
As of June 30, 2010, PostRock had derivative positions that provided price protection for approximately 8.2 Bcfe of its Cherokee Basin natural gas production for the remainder of 2010 at a volume weighted average price of $5.90 per Mcfe and positions that protect prices on the majority of its proved developed producing Cherokee Basin reserves from 2011 to 2013 at increasing prices. PostRock's natural gas and crude oil derivative positions are shown in the following table:
| Natural Gas Derivative Contract Summary | ||||||||
| Remaining 2010 | 2011 | 2012 | 2013 | |||||
| Price | Volume | Price | Volume | Price | Volume | Price | Volume | |
| ($/Mcf) | (Mmcf) | ($/Mcf) | (Mmcf) | ($/Mcf) | (Mmcf) | ($/Mcf) | (Mmcf) | |
| Southern Star Swaps | $5.94 | 6,301 | $6.43 | 5,000 | $6.72 | 2,000 | $-- | -- |
| NYMEX Swaps | $6.45 | 1,896 | $7.01 | 8,550 | $7.22 | 9,000 | $7.28 | 9,000 |
| Southern Star Basis Swaps | ($0.66) | 1,896 | ($0.67) | 8,550 | ($0.70) | 9,000 | ($0.71) | 9,000 |
| Crude Oil Derivative Contract Summary | ||||||||
| Remaining 2010 | 2011 | 2012 | 2013 | |||||
| Price | Volume | Price | Volume | Price | Volume | Price | Volume | |
| ($/Bbl) | (Bbls) | ($/Bbl) | (Bbls) | ($/Bbl) | (Bbls) | ($/Bbl) | (Bbls) | |
| NYMEX Swaps | $87.50 | 15,000 | $-- | -- | $-- | -- | $-- | -- |
Liquidity Update
At June 30, 2010, PostRock's outstanding debt balance was $321.4 million and total cash balance was $19.6 million. While PostRock successfully negotiated amendments to its various credit facilities allowing the Company to accomplish the recombination, its current portion of long-term debt obligations as of June 30, 2010 was $305.2 million, of which $6.8 million was paid in July 2010. A payment due on July 11, 2010 under the PostRock Energy Services credit facility of $20.5 million, which includes accrued interest and fees, was extended by the Company's lender to October 9, 2010. Based on the operating results for the six months ended June 30, 2010, the Company was not in compliance with its PostRock Midstream credit agreement, but the Company has secured a compliance waiver until September 15, 2010. The Company recently remediated a borrowing base deficiency of $13.6 million on its PostRock MidContinent Production credit facility using available funds, and as a result, the Company's cash balance has decreased to approximately $14.6 million as of August 2, 2010. The Company is actively pursuing the refinancing of its credit facilities, which could include the issuance of a significant amount of equity capital. There can be no assurance that the Company will be successful in these efforts or that it will have sufficient funds to pay these amounts when they come due.
| PostRock Energy Corporation and Subsidiaries | ||
| Capitalization Table | ||
| (In thousands) | June 30, 2010 | March 31, 2010 |
| Cash and Equivalents | $19,579 | $27,361 |
| Long-term debt (including current maturities) | ||
| PostRock Energy Services Corporation | ||
| Term loan | $32,118 | $31,091 |
| Revolving line of credit | 7,300 | 5,700 |
| Promissory notes | 1,334 | 1,292 |
| PostRock MidContinent Production, LLC | ||
| Quest Cherokee credit agreement | 131,800 | 141,000 |
| Second lien loan agreement | 30,118 | 29,969 |
| PostRock Midstream, LLC | ||
| Credit agreement | 118,728 | 118,728 |
| Notes payable to banks and finance companies | 47 | 57 |
| Total long-term debt | $321,445 | $327,837 |
| Equity | ||
| Total stockholders' deficit | (59,786) | (50,750) |
| Total capitalization | $261,659 | $277,087 |
About PostRock Energy Corporation
PostRock Energy Corporation is a vertically integrated independent energy company engaged in the acquisition, exploration, development, production and transportation of oil and natural gas in the Cherokee Basin, the Appalachian Basin, and Central Oklahoma. PostRock has over 2,800 wells and nearly 2,200 miles of natural gas gathering pipelines in the Cherokee Basin, over 400 natural gas and oil producing wells and undeveloped acreage in the Appalachian Basin and Marcellus shale, and more than 1,100 miles of interstate natural gas transmission pipelines in Oklahoma, Kansas, and Missouri. For more information, visit PostRock's website at www.pstr.com.
The PostRock Energy Corp. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7221
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 PostRock 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 PostRock's filings with the Securities and Exchange Commission, including risk factors listed in PostRock's Annual Report on Form 10-K and other filings with the SEC. You can find PostRock's filings with the SEC at www.pstr.com or www.sec.gov. By making these forward-looking statements, PostRock undertakes no obligation to update these statements for revisions or changes after the date of this release.
Reconciliation of Non-GAAP Financial Measures
PostRock defines adjusted EBITDA as net income (loss) before interest expense, net; income taxes; depreciation, depletion and amortization; gain (loss) on sale of assets; loss (recovery) from misappropriation of funds; impairments; other income (expense) and change in fair value of derivative instruments. The following table represents a reconciliation of PostRock's net income (loss) to EBITDA and adjusted EBITDA for the period presented:
| (Predecessor) | (Predecessor) | ||||
| Three Months Ended June 30, 2010 | Three Months Ended June 30, 2009 | March 6, 2010 to June 30, 2010 | January 1, 2010 to March 5, 2010 | Six Months Ended June 30, 2009 | |
| (in thousands) | |||||
| Net income (loss) attributable to controlling interest | $ (9,587) | $ (18,019) | $ 7,423 | $ 11,778 | $ (69,405) |
| Adjusted for: | |||||
| Net income (loss) attributable to non-controlling interest | -- | (12,511) | -- | 9,958 | (40,165) |
| Income tax expense | -- | -- | -- | -- | -- |
| Interest expense, net | 6,325 | 6,858 | 8,423 | 5,336 | 13,746 |
| Depreciation, depletion, accretion and amortization | 4,905 | 9,086 | 6,008 | 4,164 | 25,206 |
| EBITDA | $ 1,643 | $ (14,586) | $ 21,854 | $ 31,236 | $ (70,618) |
| Other (income) expense, net | (51) | (83) | 230 | 4 | (139) |
| Unrealized (gain) loss from derivative financial instruments | 8,080 | 63,784 | (7,359) | (21,573) | 41,154 |
| Recovery of misappropriated funds, net of liabilities assumed | -- | (3,397) | -- | -- | (3,397) |
| Impairment of oil and gas properties | -- | -- | -- | -- | 102,902 |
| Adjusted EBITDA | $ 9,672 | $ 45,718 | $ 14,725 | $ 9,667 | $ 69,902 |
Although adjusted EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, or GAAP, PostRock management considers it an important measure of PostRock's performance. Adjusted EBITDA is not a substitute for the GAAP measures of earnings or cash flow and is not necessarily a measure of PostRock's ability to fund PostRock's 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 PostRock's business to the extent that PostRock incurs debt, (b) depreciation, depletion, amortization and accretion, which are necessary elements of PostRock's business because PostRock uses capital assets, (c) impairments of oil and gas properties, which may at times be a material element of PostRock's business, and (d) income taxes, which may become a material element of PostRock'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 AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in thousands, except per share data) | ||||||||
| (Unaudited) | ||||||||
| (Predecessor) | (Predecessor) | (Predecessor) | ||||||
| Three Months Ended June 30, 2010 |
Three Months Ended June 30, 2009 |
March 6, 2010 to June 30, 2010 |
January 1, 2010 to March 5, 2010 |
Six Months Ended June 30, 2009 |
||||
| (in thousands, except share data) | ||||||||
| Revenue: | ||||||||
| Oil and gas sales | $ 20,120 | $ 16,107 | $ 28,591 | $ 18,659 | $ 38,382 | |||
| Gas pipeline revenue | 3,706 | 7,586 | 5,063 | 2,825 | 15,389 | |||
| Total revenues | 23,826 | 23,693 | 33,654 | 21,484 | 53,771 | |||
| Costs and expenses: | ||||||||
| Oil and gas production | 7,024 | 7,274 | 9,529 | 5,266 | 14,960 | |||
| Pipeline operating | 6,645 | 6,861 | 8,895 | 4,489 | 14,021 | |||
| General and administrative | 7,960 | 10,486 | 11,114 | 5,735 | 18,368 | |||
| Depreciation, depletion and amortization | 4,905 | 9,086 | 6,008 | 4,164 | 25,206 | |||
| Impairment of oil and gas properties | -- | -- | -- | -- | 102,902 | |||
| Recovery of misappropriated funds, net of liabilities assumed | -- | (3,397) | -- | -- | (3,397) | |||
| Total costs and expenses | 26,534 | 30,310 | 35,546 | 19,654 | 172,060 | |||
| Operating income (loss) | (2,708) | (6,617) | (1,892) | 1,830 | (118,289) | |||
| Other income (expense): | ||||||||
| Gain (loss) from derivative financial instruments | (605) | (17,138) | 17,968 | 25,246 | 22,326 | |||
| Other income (expense), net | 51 | 83 | (230) | (4) | 139 | |||
| Interest expense, net | (6,325) | (6,858) | (8,423) | (5,336) | (13,746) | |||
| Total other income (expense) | (6,879) | (23,913) | 9,315 | 19,906 | 8,719 | |||
| Income (loss) before income taxes and non-controlling interests | (9,587) | (30,530) | 7,423 | 21,736 | (109,570) | |||
| Income tax expense | -- | -- | -- | -- | -- | |||
| Net income (loss) | (9,587) | (30,530) | 7,423 | 21,736 | (109,570) | |||
| Net (income) loss attributable to non-controlling interest | -- | 12,511 | -- | (9,958) | 40,165 | |||
| Net income (loss) attributable to controlling interest | $ (9,587) | $ (18,019) | $ 7,423 | $ 11,778 | $ (69,405) | |||
| Net income (loss) per common share: | ||||||||
| Basic | $ (1.19) | $ (0.57) | $ 0.92 | $ 0.37 | $ (2.18) | |||
| Diluted | $ (1.19) | $ (0.57) | $ 0.91 | $ 0.36 | $ (2.18) | |||
| Weighted average shares outstanding: | ||||||||
| Basic | 8,049 | 31,868 | 8,047 | 32,137 | 31,799 | |||
| Diluted | 8,049 | 31,868 | 8,116 | 32,614 | 31,799 | |||
| POSTROCK ENERGY CORPORATION AND SUBSIDIARIES | ||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
| (in thousands, except share and per share data) | ||||
| (Predecessor) | ||||
|
June 30, 2010 |
December 31, 2009 |
|||
| (Unaudited) | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ 19,579 | $ 20,884 | ||
| Restricted cash | 565 | 718 | ||
| Accounts receivable — trade, net | 10,425 | 13,707 | ||
| Other receivables | 676 | 2,269 | ||
| Other current assets | 6,391 | 8,141 | ||
| Inventory | 7,375 | 9,702 | ||
| Current derivative financial instrument assets | 23,722 | 10,624 | ||
| Total current assets | 68,733 | 66,045 | ||
|
Oil and gas properties under full cost method of accounting, net |
44,848 | 40,478 | ||
| Pipeline assets, net | 139,016 | 136,017 | ||
| Other property and equipment, net | 18,688 | 19,433 | ||
| Other assets, net | 2,407 | 2,727 | ||
| Long-term derivative financial instrument assets | 32,855 | 18,955 | ||
| Total assets | $ 306,547 | $ 283,655 | ||
| LIABILITIES AND EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $ 13,876 | $ 10,852 | ||
| Revenue payable | 4,792 | 5,895 | ||
| Accrued expenses | 11,304 | 11,417 | ||
| Current portion of notes payable | 305,191 | 310,015 | ||
| Current derivative financial instrument liabilities | 1,676 | 1,447 | ||
| Total current liabilities | 336,839 | 339,626 | ||
| Long-term derivative financial instrument liabilities | 6,406 | 8,569 | ||
| Other liabilities | 6,834 | 6,552 | ||
| Notes payable | 16,254 | 19,295 | ||
| Commitments and contingencies | ||||
| Equity: | ||||
| Preferred stock | -- | -- | ||
| Common stock | 80 | 33 | ||
| Additional paid-in capital | 368,346 | 299,010 | ||
| Treasury stock, at cost | -- | (7) | ||
| Accumulated deficit | (428,212) | (447,413) | ||
|
Total stockholders' deficit before non-controlling interests |
(59,786) | (148,377) | ||
| Non-controlling interests | -- | 57,990 | ||
| Total equity | (59,786) | (90,387) | ||
| Total liabilities and equity | $ 306,547 | $ 283,655 | ||
| POSTROCK ENERGY CORPORATION AND SUBSIDIARIES | ||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
| (in thousands) | ||||||
| (Unaudited) | ||||||
| (Predecessor) | (Predecessor) | |||||
|
March 6, 2010 to June 30, 2010 |
January 1, 2010 to March 5, 2010 |
Six Months Ended June 30, 2009 |
||||
| (in thousands) | ||||||
| Cash flows from operating activities: | ||||||
| Net income (loss) | $ 7,423 | $ 21,736 | $ (109,570) | |||
| Adjustments to reconcile net income (loss) to cash provided by operations: | ||||||
| Depreciation, depletion and amortization | 6,008 | 4,164 | 25,206 | |||
| Stock-based compensation | 634 | 808 | 819 | |||
| Impairment of oil and gas properties | -- | -- | 102,902 | |||
| Amortization of deferred loan costs | 1,558 | 2,094 | 2,097 | |||
| Change in fair value of derivative financial instruments | (7,359) | (21,573) | 41,154 | |||
| Loss (gain) on disposal of property and equipment | 140 | -- | -- | |||
| Non-cash portion of recovery of misappropriated funds | -- | -- | (977) | |||
| Other non-cash changes to items affecting net income | 111 | -- | -- | |||
| Change in assets and liabilities: | ||||||
| Accounts receivable | 3,519 | (237) | 1,322 | |||
| Other receivables | 579 | 1,014 | 2,336 | |||
| Other current assets | (2,305) | 466 | 386 | |||
| Other assets | (3) | 2 | 116 | |||
| Accounts payable | 646 | (83) | (16,152) | |||
| Revenue payable | (946) | (157) | 480 | |||
| Accrued expenses | 1,710 | 983 | 1,817 | |||
| Other long-term liabilities | (9) | -- | (1) | |||
| Other | -- | -- | (57) | |||
| Cash flows from operating activities | 11,706 | 9,217 | 51,878 | |||
| Cash flows from investing activities: | ||||||
| Restricted cash | 154 | (1) | (201) | |||
| Proceeds from sale of oil and gas properties | 101 | -- | 8,730 | |||
| Equipment, development, leasehold and pipeline | (9,944) | (2,282) | (5,256) | |||
| Cash flows from investing activities | (9,689) | (2,283) | 3,273 | |||
| Cash flows from financing activities: | ||||||
| Proceeds from bank borrowings | -- | -- | 1,430 | |||
| Repayments of bank borrowings | (13,215) | (41) | (9,662) | |||
| Proceeds from revolver | 2,100 | 900 | -- | |||
| Repayments of revolver note | -- | -- | (17,902) | |||
| Refinancing costs | -- | -- | (389) | |||
| Cash flows from financing activities | (11,115) | 859 | (26,523) | |||
| Net increase (decrease) in cash | (9,098) | 7,793 | 28,628 | |||
| Cash and cash equivalents beginning of period | 28,677 | 20,884 | 13,785 | |||
| Cash and cash equivalents end of period | $ 19,579 | $ 28,677 | $ 42,413 | |||