OKLAHOMA CITY, May 13, 2010 (GLOBE NEWSWIRE) -- PostRock Energy Corporation (Nasdaq:PSTR) today announced its results for the first quarter of 2010, the filing of its Quarterly Report on Form 10-Q for the period ended March 31, 2010 and that an agreement in principle has been reached to settle all of the securities litigation pending against PostRock and its predecessor entities.
Management Comment
David C. Lawler, President and Chief Executive Officer of PostRock said, "During the first quarter we executed on our development plan in the Cherokee and Appalachian Basins, lowered lease operating expense and reduced net debt while working to simplify our capital structure. Also during the period, we reached an agreement in principle to settle all of the securities litigation pending against our organization. We are awaiting preparation and execution of a formal settlement agreement, which will be subject to Court approval."
"In the Cherokee Basin, we began completing our previously drilled wells during the quarter and anticipate having 100 of these wells on production by the end of the second quarter. Cumulative production from these newly completed wells is currently ahead of our type curve and costs are below budget. In the Marcellus Shale play of the Appalachian Basin, we recently drilled three vertical wells in Wetzel County, West Virginia and are participating in our first horizontal Marcellus Shale well in Lewis County, West Virginia. In our interstate pipeline operations, we recently completed a bi-directional interconnect with the Enogex system in Oklahoma."
Results of Operations for the Three Months Ended March 31, 2010
Oil and gas sales increased $4.9 million, or 21.8%, to $27.1 million during the three months ended March 31, 2010 from the three months ended March 31, 2009. This increase was primarily due to an increase in average realized prices, which resulted in increased revenues of $8.9 million, partially offset by lower production volumes, which reduced revenue by $4.0 million. Natural gas equivalent volumes declined to 4.8 Bcfe for the three months ended March 31, 2010, or 12.8%, from 5.5 Bcfe for the three months ended March 31, 2009. This decline was primarily a result of a lack of development activity due to liquidity constraints and the Company's focus on debt reduction. Our average realized prices on a thousand cubic feet equivalent basis (Mcfe) increased to $5.62 per Mcfe for the three months ended March 31, 2010, from $4.02 per Mcfe for the three months ended March 31, 2009.
Third party natural gas pipeline revenue decreased $3.6 million, or 46.4%, to $4.2 million during the three months ended March 31, 2010, from $7.8 million during the three months ended March 31, 2009. The decrease was primarily due to the loss of a significant customer on our interstate pipeline during the fourth quarter of 2009 along with a decline in third-party volumes transported on our Cherokee Basin gathering pipeline system.
Oil and gas production costs, which include lease operating expenses, severance taxes and ad valorem taxes, increased $0.1 million, or 1.1%, to $7.8 million during the three months ended March 31, 2010, from $7.7 million during the three months ended March 31, 2009. The increase was primarily due to higher ad valorem taxes of $1.2 million which was mostly offset by a $1.1 million reduction in lease operating expense. Production costs were $1.61 per Mcfe for the three months ended March 31, 2010 as compared to $1.39 per Mcfe for the three months ended March 31, 2009.
Pipeline operating expense decreased $0.4 million, or 5.9%, to $6.7 million during the three months ended March 31, 2010, from $7.1 million during the three months ended March 31, 2009. The decrease was a result of successful cost reduction efforts primarily related to our Cherokee Basin gathering pipeline system.
General and administrative expenses increased $1.0 million, or 12.8%, to $8.9 million during the three months ended March 31, 2010, from $7.9 million during the three months ended March 31, 2009. The increase is primarily due to an accrual for our estimate of lawsuit settlement costs offset by lower variable compensation. As noted above, we reached an agreement in principle to settle all of the federal securities lawsuits and are awaiting preparation and execution of a formal settlement agreement, which will be subject to Court approval. We are contributing $1 million to the proposed settlement of the lawsuits and we have accrued additional sums to pay for anticipated further costs in connection with the lawsuits. There can be no assurance that we will finalize the settlement agreement or that the final settlement amount will equal the amount of the accrual.
Depreciation, depletion and amortization expense decreased $10.8 million, or 67.1%, to $5.3 million during the three months ended March 31, 2010, from $16.1 million during the three months ended March 31, 2009. The decrease was a result of an impairment of our oil and gas properties in the first quarter of 2009 totaling $102.9 million and an impairment of our pipeline related assets during the fourth quarter of 2009 totaling $165.7 million.
Adjusted EBITDA decreased $9.5 million, or 39.2%, to $14.7 million during the three months ended March 31, 2010, from $24.2 million during the three months ended March 31, 2009. The decrease was primarily driven by reduced realized gains on our derivative financial instruments as a result of lower volumes hedged as well as reduced gas pipeline revenues.
Gain from derivative financial instruments increased $4.3 million to $43.8 million for the three months ended March 31, 2010, from $39.5 million for the three months ended March 31, 2009. We recorded a $37.0 million unrealized gain and $6.8 million realized gain on our derivative contracts for the three months ended March 31, 2010 compared to a $22.6 million unrealized gain and $16.8 million realized gain for the three months ended March 31, 2009. Unrealized gains and losses are attributable to changes in oil and natural gas prices and volumes hedged from one period end to another.
As of March 31, 2010, PostRock had derivative positions that provided price protection for approximately 12.3 Bcfe of its Cherokee Basin natural gas production at an average price of $5.82 per Mcfe for the remainder of 2010 and positions that protect prices on the majority of its proved developed producing Cherokee Basin reserves from 2011 to 2013 at increasing prices. PostRock's natural gas and crude oil derivative positions are shown in the following table:
| Natural Gas Derivative Contract Summary | ||||||||
| Remaining 2010 | 2011 | 2012 | 2013 | |||||
| Price ($/mcf) |
Volume (MMcf) |
Price ($/mcf) | Volume (MMcf) | Price ($/mcf) | Volume (MMcf) | Price ($/mcf) | Volume (MMcf) | |
| Southern Star Swaps | $5.86 | 9,417 | $6.43 | 5,000 | $6.72 | 2,000 | -- | -- |
| NYMEX Swaps | $6.36 | 2,834 | $7.01 | 8,550 | $7.22 | 9,000 | $7.28 | 9,000 |
|
Southern Star Basis Swaps |
($0.65) | 2,834 | ($0.67) | 8,550 | ($0.70) | 9,000 | ($0.71) | 9,000 |
| Crude Oil Derivative Contract Summary | ||||||||
| Remaining 2010 | ||||||||
|
Price ($/bbl) |
Volume (MBbls) | |||||||
| NYMEX Swap | $87.50 | 22,500 | ||||||
Liquidity Update
At March 31, 2010, PostRock's outstanding debt balance was $327.8 million and total cash balance was $27.4 million. During the first quarter of 2010, the Company paid down $4.0 million of debt under the Quest Cherokee Credit Agreement and borrowed $1.4 million under its QRCP revolving line of credit. In April 2010, the Company paid down an additional $2.4 million of debt and borrowed another $0.7 million under its QRCP revolving line of credit. PostRock was in compliance with all of its financial covenants as of March 31, 2010.
|
POSTROCK ENERGY CORPORATION AND SUBSIDIARIES CAPITALIZATION TABLE (in thousands) |
||
| (Predecessor) | ||
| March 31, 2010 | December 31, 2009 | |
| Cash and cash equivalents | $ 27,361 | $ 20,884 |
| Long-term debt (including current maturities): | ||
| PostRock Energy Services Corporation | ||
| Term loan | $ 31,091 | $ 30,108 |
| Promissory notes | 1,292 | 1,250 |
| Revolving line of credit | 5,700 | 4,300 |
| PostRock MidContinent Production, LLC | ||
| Quest Cherokee credit agreement | 141,000 | 145,000 |
| Second lien loan agreement | 29,969 | 29,821 |
| PostRock Midstream, LLC | ||
| Credit agreement | 118,728 | 118,728 |
| Notes payable to banks and finance companies | 57 | 103 |
| Total long-term debt | $ 327,837 | $ 329,310 |
| Equity: | ||
| Total stockholders' deficit | $ (50,750) | $ (148,377) |
| Non-controlling interests | — | 57,990 |
| Total deficit | (50,750) | (90,387) |
| Total capitalization | $ 277,087 | $ 238,923 |
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. The Company also owns and operates nearly 400 natural gas and oil producing wells and undeveloped acreage in the Appalachian Basin of the northeastern United States 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) | |||
|
|
March 6, 2010 to March 31, 2010 |
January 1, 2010 to March 5, 2010 |
Three Months Ended March 31, 2009 |
|
| Net income attributable to controlling interest | $ 17,010 | $ 11,778 | $ (51,386) | |
| Adjusted for: | ||||
| Net income loss attributable to non-controlling interest | — | 9,958 | (27,654) | |
| Income tax expense | — | — | — | |
| Interest expense | 2,098 | 5,336 | 6,888 | |
| Depreciation, depletion and amortization | 1,103 | 4,164 | 16,120 | |
| EBITDA | 20,211 | 31,236 | (56,032) | |
| Other (income) expense, net | 281 | 4 | (56) | |
| Unrealized (gain) loss from derivative financial instruments | (15,439) | (21,573) | (22,630) | |
| Recovery of misappropriated funds, net of liabilities assumed | — | — | — | |
| Impairment of assets | — | — | 102,902 | |
| Adjusted EBITDA | $ 5,053 | $ 9,667 | $ 24,184 | |
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.
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POSTROCK ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited) |
||||
| (Predecessor) | ||||
|
|
March 6, 2010 to March 31, 2010 |
January 1, 2010 to March 5, 2010 |
Three Months Ended March 31, 2009 |
|
| Revenue: | ||||
| Oil and gas sales | $ 8,471 | $ 18,659 | $ 22,275 | |
| Gas pipeline revenue | 1,357 | 2,825 | 7,803 | |
| Total revenues | 9,828 | 21,484 | 30,078 | |
| Costs and expenses: | ||||
| Oil and gas production | 2,505 | 5,266 | 7,686 | |
| Pipeline operating | 2,250 | 4,489 | 7,160 | |
| General and administrative | 3,154 | 5,735 | 7,882 | |
| Depreciation, depletion and amortization | 1,103 | 4,164 | 16,120 | |
| Impairment of oil and gas properties | — | — | 102,902 | |
| Total costs and expenses | 9,012 | 19,654 | 141,750 | |
| Operating income (loss) | 816 | 1,830 | (111,672) | |
| Other income (expense): | ||||
| Gain (loss) from derivative financial instruments | 18,573 | 25,246 | 39,464 | |
| Other income (expense), net | (281) | (4) | 56 | |
| Interest expense, net | (2,098) | (5,336) | (6,888) | |
| Total other income (expense) | 16,194 | 19,906 | 32,632 | |
| Income (loss) before income taxes and non-controlling interests | 17,010 | 21,736 | (79,040) | |
| Income tax expense | — | — | — | |
| Net income (loss) | 17,010 | 21,736 | (79,040) | |
| Net (income) loss attributable to non-controlling interest | — | (9,958) | 27,654 | |
| Net income (loss) attributable to controlling interest | $ 17,010 | $ 11,778 | $ (51,386) | |
| Net income (loss) per common share: | ||||
| Basic | $ 2.12 | $ 0.37 | $ (1.62) | |
| Diluted | $ 2.04 | $ 0.36 | $ (1.62) | |
| Weighted average shares outstanding: | ||||
| Basic | 8,038 | 32,137 | 31,741 | |
| Diluted | 8,348 | 32,614 | 31,741 | |
|
POSTROCK ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) |
||
| (Predecessor) | ||
| March 31, 2010 | December 31, 2009 | |
| ASSETS | (Unaudited) | |
| Current assets: | ||
| Cash and cash equivalents | $ 27,361 | $ 20,884 |
| Restricted cash | 564 | 718 |
| Accounts receivable — trade, net | 13,368 | 13,707 |
| Other receivables | 1,350 | 2,269 |
| Other current assets | 7,288 | 8,141 |
| Inventory | 8,009 | 9,702 |
| Current derivative financial instrument assets | 28,832 | 10,624 |
| Total current assets | 86,772 | 66,045 |
| Oil and gas properties under full cost method of accounting, net | 41,878 | 40,478 |
| Pipeline assets, net | 137,675 | 136,017 |
| Other property and equipment, net | 19,113 | 19,433 |
| Other assets, net | 2,986 | 2,727 |
| Long-term derivative financial instrument assets | 39,380 | 18,955 |
| Total assets | $ 327,804 | $ 283,655 |
| LIABILITIES AND EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $ 15,746 | $ 10,852 |
| Revenue payable | 5,585 | 5,895 |
| Accrued expenses | 11,062 | 11,417 |
| Current portion of notes payable | 310,072 | 310,015 |
| Current derivative financial instrument liabilities | 2,085 | 1,447 |
| Total current liabilities | 344,550 | 339,626 |
| Long-term derivative financial instrument liabilities | 9,552 | 8,569 |
| Other liabilities | 6,687 | 6,552 |
| Notes payable | 17,765 | 19,295 |
| Commitments and contingencies | ||
| Equity: | ||
|
Preferred stock of Predecessor, $0.001 par value; authorized shares — 50,000,000; none issued and outstanding |
— | |
|
Common stock of Predecessor, $0.001 par value; authorized shares — 200,000,000; issued —32,160,121; outstanding —31,981,317 |
33 | |
|
Preferred stock, $0.01 par value; authorized shares — 5,000,000; none issued and outstanding |
— | |
|
Common stock, $0.01 par value; authorized shares — 40,000,000; issued and outstanding —8,038,974 |
80 | |
| Additional paid-in capital | 367,795 | 299,010 |
| Treasury stock, at cost | (7) | |
| Accumulated deficit | (418,625) | (447,413) |
| Total stockholders' deficit before non-controlling interests | (50,750) | (148,377) |
| Non-controlling interests | 57,990 | |
| Total equity | (50,750) | (90,387) |
| Total liabilities and equity | $ 327,804 | $ 283,655 |
|
POSTROCK ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) |
|||
| (Predecessor) | |||
|
|
March 6, 2010 to March 31, 2010 |
January 1, 2010 to March 5, 2010 |
Three Months Ended March 31, 2009 |
| Cash flows from operating activities: | |||
| Net income (loss) | $ 17,010 | $ 21,736 | $ (79,040) |
| Adjustments to reconcile net income (loss) to cash provided by operations: | |||
| Depreciation, depletion and amortization | 1,103 | 4,164 | 16,120 |
| Stock-based compensation | 83 | 808 | 487 |
| Impairment of oil and gas properties | — | — | 102,902 |
| Amortization of deferred loan costs | 396 | 2,094 | 576 |
| Change in fair value of derivative financial instruments | (15,439) | (21,573) | (22,630) |
| Loss (gain) on disposal of property and equipment | 172 | — | — |
| Other non-cash changes to items affecting net income | 111 | — | — |
| Change in assets and liabilities: | |||
| Accounts receivable | 576 | (237) | 955 |
| Other receivables | (95) | 1,014 | 2,700 |
| Other current assets | (2,072) | 466 | 248 |
| Other assets | (477) | 2 | 579 |
| Accounts payable | 2,814 | (83) | (10,094) |
| Revenue payable | (153) | (157) | (395) |
| Accrued expenses | 249 | 983 | 861 |
| Other long-term liabilities | (4) | — | (1) |
| Other | — | — | (6) |
| Cash flows from operating activities | 4,274 | 9,217 | 13,262 |
| Cash flows from investing activities: | |||
| Restricted cash | 155 | (1) | 24 |
| Proceeds from sale of oil and gas properties | — | — | 8,730 |
| Equipment, development, leasehold and pipeline | (2,241) | (2,282) | (4,003) |
| Cash flows from investing activities | (2,086) | (2,283) | 4,751 |
| Cash flows from financing activities: | |||
| Proceeds from bank borrowings | — | — | 150 |
| Repayments of bank borrowings | (4,004) | (41) | (4,932) |
| Proceeds from revolver | 500 | 900 | — |
| Repayments of revolver note | — | — | — |
| Refinancing costs | — | — | (37) |
| Cash flows from financing activities | (3,504) | 859 | (4,819) |
| Net increase (decrease) in cash | (1,316) | 7,793 | 13,194 |
| Cash and cash equivalents beginning of period | 28,677 | 20,884 | 13,785 |
| Cash and cash equivalents end of period | $ 27,361 | $ 28,677 | $ 26,979 |